When is the Right Time to Send Accounts to a Collection Agency?
Wednesday, February 27, 2019
In credit management, you have many tools to help you collect money internally, but what happens when:
- Your calls go unanswered?
- Your emails get no response?
- The customer makes several promises with no payment?
- The customer’s check bounces?
- You put the customer’s account on credit hold and they still don’t pay?
- The customer makes small payments but not enough to bring their account current?
- Decision makers avoid communicating with you?
We all take pride in our successes. But what happens when you don’t get paid and you feel you have exhausted all efforts to work with your customer to expedite payment? Following are several questions to help establish whether it’s time to seek assistance.
Can they buy from someone else?
If a debt is outstanding, one of your best tools to get paid is to put the customer on credit hold. If the customer does not pay immediately, they may not need your product any longer, or they are in a dire financial condition. If you are the lone source of a product the customer needs, you have significant leverage. However, if they can buy from someone else, that leverage is gone and collecting may be more challenging.
Is the customer avoiding you?
When was the last time your past-due customer spoke to you or responded to an email? When was the last time you received a payment?
“If it has been 30-60 days since speaking with someone or receiving payment from someone that is past due, you are most likely being avoided. It is time to do something different, to get different results.” said Brian Armstrong, President of Commercial Collectors Inc. “If you have exhausted your efforts, using a collection agency will increase urgency.”
With whom are you discussing the account?
Are you communicating with the actual decision maker or someone who can only request authorization to pay? Many people in an organization only have the authority to say “no.” To get paid, you need to talk to people that have the authority to say “yes.” Accounts payable can often say yes only when instructed by a decision maker. If you are not getting to the decision maker, it may take a third party to get around the gatekeeper.
How old is the debt?
Every credit professional knows the value of receivables diminishes as they age. The longer you wait before turning over an account, the less effective demand efforts will be. Depending on what industry information you subscribe to, collectability from 60-90 days drops from 81 percent to 69 percent. It would stand to reason the longer you wait to place nonperforming accounts, third-party collection work and litigation will take more time and be costlier as well.
Do you feel like the “boy who cried wolf”?
When attempting to collect a debt, there is a logical series of demands or “threats” – the account will be placed for collection or go to litigation, for example – made to increase urgency to get paid. Without following through with those “threats,” over time, customers become conditioned to dismiss them as empty. Continued warnings are unlikely to result in action if they believe there are no consequences. Sometimes, it is the simple act of doing what you say you are going to do that will get you paid.
What does a collection agency do for you, that you can’t do yourself?
By taking the next step and bringing in a collection agency, the customer realizes there are consequences if they don’t pay.
“As a collection agency, our job is to create urgency, to influence the customer to rearrange their priorities to pay our client’s bill ahead of other suppliers” said Larry Barthel vice president of Commercial Collectors Inc. “Getting a collection agency involved is the first step in letting your customer know you meant what you said and expect payment.”
Answering these questions can help you recognize red flags. The timely placement of accounts gives your collection agency partner the best chance to collect, which results in quicker and higher recoveries for you. Waiting too long results in higher collection expenses, longer collection times and, worst of all, more write-offs.
Commercial Collectors Inc. (CCI) is NACM North Central’s preferred collection services provider. Having worked with NACM North Central members for many years, CCI has the knowledge and experience needed to provide efficient, effective, service-focused collections to reduce write-offs. To find out how CCI can help you, contact Larry Barthel at firstname.lastname@example.org or (763) 453-7408, or visit www.commercialcollectors.com.