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|Louis S. Freedma
It’s almost impossible to imagine a world without credit. Major purchases like a home, car, college education, and vacations would be difficult even for the wealthy and virtually impossible for everyone else. So many things that make our life comfortable can be attributed to our ability to obtain credit. Consumer spending makes up over 70 percent of the U.S. economy and is driven by the availability of credit.
The availability of affordable credit is based on an important
concept: credit is a promise to repay. In a perfect world, the credit
“ecosystem” would only consist of creditors and consumers who repay
their obligations. Perfect balance. However, when credit is not
repaid, due to unforeseen hardships or other reasons, it results in
higher credit costs for everyone, including those who paid their bills.
This is an imbalance that is corrected, in part, by bringing attorneys
into the ecosystem.
After sending a non-paying customer’s account to a collection agency for assistance in collecting on past-due invoices, the collector reports they haven’t been able to recover your money. Does the reason for non-payment matter?
At this point, you must decide how to proceed in the collection effort. You have several options here, including:
· Writing off the debt
· Creating a payment plan on the account
· Entering into litigation against the customer
· Closing the claim and/or writing off the debt
· Postponing collection efforts while monitoring the situation
· Gathering more information to resolve a dispute
· Pay to run a skip-trace on the debtor
· Using a different collection agency in hopes they will be able to collect the balance
Choosing which course of action to take at this point should be considered in the same way as any other business decision. Clearly, collecting and analyzing information allows you to make better decisions about what to sell, how to sell it and who to market it to. Applying the same process of data collection and analysis will allow your business to improve the profitability of its unpaid invoice collection efforts. Naturally, the larger the amount owed, the greater impact this decision will have on your business’s bottom line.
Many collectors feel taking an extremely firm position in their collection process produces the fastest results, regardless of the debtor’s situation. This means that when the collector makes contact with the debtor, they simply demand immediate payment in full and then commence collection litigation if the debtor doesn’t pay. The idea behind this approach is that the debtor will realize the matter is being taken seriously and feel pressured into paying off the debt. Sometimes, this method achieves its goal and results in payment if the debtor has the assets to cover the debt. However, oftentimes taking this heavy-handed approach results in the debtor retreating and cutting off communication, which seriously impedes the chances of successful collection. Furthermore, if a debtor truly doesn’t have the money to pay off the debt, taking them to court may not end up being worth the time and resources.
If the debtor is pressured into reducing or refusing communication with the collection agency, this can seriously reduce the chances of successfully collecting the balance due. Limited access to information from the debtor often results in an agency making less-than optimal decisions. Spending money on litigation with a company that is about to shutter or file bankruptcy is a waste of both time and resources; even if a judgment is obtained against a debtor, it usually takes between six months and two years to collect on it. More often than not, cooperation between debtor and collector result in faster payment at a much lower cost.
The challenge of successful debt collection lies in finding a balance between aggressively pursuing payment in a way that doesn’t negatively affect your ability to gather important information from the debtor. Experience in collections, as well as good general business knowledge, prove very helpful in this balancing act. Understanding the true situation behind a debtor’s non-payment has become even more crucial in today’s still-challenging business climate, as many small and mid-size companies continue to struggle.
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