Collections - What does it REALLY cost?

"It's not what you pay a man, but what he costs you that counts." - Will Rogers



There is so much truth, on so many levels, in that simple little statement. But business is what we do, right? So based on that premise, let's ask and (hopefully) answer a few questions about the real cost of doing business, especially as it relates to accounts receivable.

1. How much are you paying the person that is pursuing the accounts that are in you 90-day+ columns? I find that the answer to this question doesn't really matter. No matter how much it is, there are much more productive ways to spend their salary. This person should be making money for your business, but if they are chasing bad debt, you are loosing at least twice their salary. Why? You are loosing whatever profit you could be earning by having them work on more productive projects, plus they obviously are not recovering the money that they are chasing so you are loosing that too! Put them to work making you money, and let a contingency based collection agency chase the old receivables. It costs you nothing unless they are successful!
2. How much does it cost to let the accounts continue to sit on your aging? Statistics show that of accounts that are allowed to go 90 days past-due, 73.1% ever get collected. At 180 days that number drops to 50%; 210 days = 40.4%; 365 days = 25%; 2 years = 10.5%. Are you starting to get the picture? Our contingency rate for accounts less than 365 days past-due (and still in business) is 15%. Here is an example of how we can MAKE your business money (notice I said make, not save). Say you place an account that owes you $1000, at 90 days past-due. We collect the entire $1000, and charge you 15% ($150). You have already saved or recovered 11.9% (based on the national average quoted above of 73.1%), plus you have earned whatever profit the person that you would normally have had chasing this debt within your organization has been able to create for you. Make sense? Now remember, these are folks that are refusing to pay (by either saying they can't or won't), so we can't guarantee that we will collect all of them, but you are not collecting all of them in-house either. I am saying that we can help increase your profitability over-all.
3. Are there any other benefits to using a collection agency? Well, I'm glad you asked! In most cases, our fees can be written off as a cost of sales expense (speak to your accountant for the specifics). When it comes tax-time, we all comb through our records for every available tax benefit we can find, right? Not to be dishonest (although I am sure there are those types out there), but just to make sure we are taking advantage of every loophole, er.....I mean.....legal write-off that we can find.....wink, wink! Really, as stated above, this is a legitimate, cost of sales, write-off in most cases.
4. Why not just initiate suit? I have two answers to this question, and they depend on how much you are pursuing, so we will start small: A) Small claims - Someone within your organization has to take time out to go to the courthouse, file a claim, and then show up at any proceedings. Plus, whatever the charge is to do that in your local jurisdiction. - COSTLY! Then add travel expenses, if your customer is not local. If your company has a website, this is a more and more common situation. We aren't just selling to the people in our neighborhoods any more, and this is necessary to survive in what has become a global economy! B) Larger accounts - These accounts are going to require an attorney (not the one that you go to when you have legal corporate questions, but a collections attorney). This is both COSTLY and very TIME CONSUMING! Again, if your non-paying customer is not local, this presents a whole bunch of other hurdles. Now add to both of these scenarios the fact that once you get a judgement, you still have to collect on it, and I think you will at least start to see my point. Yes, a small number of accounts that go to collection still end up needing to be sued, but we have lower costs options for that as well. One reason being that we do a lot of the leg-work for the attorney ahead of time. And it didn't cost you a dime!

I hope that I have helped answer some of your questions regarding the True Cost of aged accounts receivable. If you want help collecting, we can do that too! Contact me by phone at (800) 313-9611 Ext.103, or by e-mail at neil@hamiltonandmonroe.com.

Happy Monday!

Collections - Are you tough, or are you spineless?

"Cannibals prefer those who have no spines." - Stanislaw Lem.

Whoa! I hope that got your attention this Monday morning! What exactly could that mean, in reference to collections? Cannibals prefer those who have no spines....? Debtors can be likened to cannibals. They are a business, just like you. But yet, you are allowing them to suck the life out of your business! "Wait", you say, "I'm not allowing them to, they just are!". Do you think your debtors are not paying any of their creditors? Absolutely not! They couldn't possibly stay in business without paying ANY of their creditors. Whether it be the electric company, the telephone company, or their supplier with the strongest credit and collection policy, they are paying someone!

Give them a reason to put you on their list of creditors that they have to pay to survive! How? By having a clear-cut collection policy, and following through! Here is a list of things (in no specific order) that you can do to keep from being cannibalized by your debtors:

• Have clear-cut collection policies, and stick to them. (Also make your people stick to them)
• Do not make empty threats. It is better to not threaten at all, then to threaten and then do nothing.
• Use your collection agency to their fullest potential. If your agency doesn't give free ten-day demands, find one that does. (We do!)
• Make your accounting staff accountable, so you can know what is going on at any given time with any delinquent customer.
• Make sure everything is documented. If it's not documented, it didn't happen!
• Use the tools that you have in-house to their fullest potential. Place customers on credit hold, place liens, etc. Even if you intend to send them to collections, these practices are good "insurance".
• Lastly: Don't get so personally involved with your customers that you can't call and ask why they haven't paid. It's not personal, it's business!

I know you've heard the expression, "It's a dog-eat-dog world". It's absolutely true. Don't be spineless. Don't be the easy target for your customers who are looking for a creditor not to pay. Don't be the "Peter" that your customers are looking to rob so they can pay "Paul". Paul has a strong collection policy and he sticks to it! Be Paul! Be strong, not spineless!

Happy Monday! Happy collecting! Call if you need us, we are here to help you stay strong!

Neil

More Change

Any Change, even a change for the better, is always accompanied by drawbacks and discomforts. - Arnold Bennett

Change. The word sometimes sends chills down my spine. I hate change! Most people do, whether for the better or worse. We are creatures of comfort and habit. Why would you want to change? Besides, when you change you can't be absolutely sure that it will be for the better. It's a gamble, a crap-shoot! It might be for the better, but it could be for the worse, right? You never know. It has been said that one constant that you can be sure of, is change. Things change, and changes need to be made from time to time. You just kind of have to "suck it up" and deal with it!

Now this is a collections blog, so what does change have to do with collections? Well you may need to change your approach to collections, especially if you are doing nothing. Doing nothing with your outstanding accounts receivable is not a plan, it is a lack thereof. Use a collection agency, and yes I would like for that to be us, but I know we are not the right fit for everyone. Use them as an extension of your own efforts, not as a replacement. Many times, an agency can be seen by your a/r staff as a threat to their job. We will NEVER replace your people, that is not our goal. You just need an outlet for the accounts that they cannot collect, and every accounting department has those accounts. They might get brushed under the carpet and written off, but everyone has them. It's a fact of life. You need to do something with the accounts in your 90-120 day column, and we can help.

If you want to at least entertain the idea of making a change and actually do something with your outstanding accounts receivable, call or e-mail me at 800-313-9611 ext. 103 or neil@hamiltonandmonroe.com. We will change together!