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!

Change

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

I think we can all agree that everything changes? Life changes, jobs change, the economy changes every day, and our approach to problems has to change. That last thing is what I want to address today. Our approach to the problems that arise in regard to credit and collections and the drawbacks and discomforts that may arise.

When I first entered the collections industry six years ago, things were much different. But as I stated above, things change. Back then, it was very common to have a collector recover accounts that were several months or years old. Now though, even with all of the improvements in technology and skip-tracing, that is very rare. Because of the changes in the economy, when a business closes it's not so much that people are trying to protect their assets like it once was. Now if they are out of business it is likely because they have lost or spent everything they have trying to stay open. If they are out of business, they are probably flat broke.

Which brings me to today's point. In this ever-changing economy, you can not operate as you always have. Where we may have collected accounts that were several years old in the past, now it is becoming more and more rare to collect accounts that are several months old. Today's economy requires a much more pro-active approach to collections. Your action has to begin when accounts reach your thirty-day column. You cannot be lax about sending past-due notices and requiring that your A/R staff know exactly why every account is late. Stay informed. If an account is past thirty days you need to know why. That way you can have your next action planned. Who needs a past-due notice? Who needs a call? Who needs a demand for payment? And finally, who needs to be placed for collection? I know it may seem like a negative or cynical approach, but desperate times call for desperate measures. If you don't take action first your reaction might be too late!

We know that even as the economy changes, it also may become harder for you to convince yourself or the "powers that be" to take the next step, and spend the money that it takes to hire a service like ours to recover those outstanding accounts. That is why we offer a much lower cost solution and we only work on a contingency basis (If we aren't able to collect, it costs you nothing). Our rates are lower than most of our competition. In fact, the only service with lower rates may be so-called "letter writing agencies". We may even be competitive with their rates, and your customers don't need another letter. What they need is the aggressive yet professional approach to collections that we employ. We can salvage your relationship with the customer AND collect your money. Call or e-mail me at (800)313-9611 Ext. 103 or neil@hamiltonandmonroe.com.

Happy Monday!

Foresight

Henry R. Luce said, "Business, more than any other occupation, is a continual dealing with the future; it is a continual calculation, an instinctive exercise in foresight." So let's talk today about foresight in respect to credit and collections or accounts receivable.

If you are a regular reader, then you may be starting to realize that I "harp" or "preach" about having a plan and sticking to it quite a bit. Here's why; If Benjamin Franklin was right and a failure to plan is a plan for failure, then I would have to say that if you plan and still fail, your failure could be because you deviate from your plan. Yes business is an exercise in foresight, but you cannot forsee everything. That is why there has to be controls in place for those situations that are not forseen. There is no way of knowing who will and will not pay, for sure. Yes, we can look at trends and credit reports, check credit referrences, etc. What about that company that has been a good paying customer of your for years, but because of a quirk in the economy they are suddenly facing bankruptcy?

These are the types of situations that a good plan can help you avoid much of the time. If your A/R policy dictates that every customer that goes 30 days past-due gets a call and a copy of the invoice stamped "past-due", then just about all of your customers will have an opportunity to see this. There will be the occasional lost invoice, minor discrepancy, or price dispute that will cause most of your customers to have an invoice go past 30 days, it just happens. If your customer has been "trained" by your policy, it will never be a big shock when they see this. Also, if you follow your plan, it will help you snoop out the larger problems. No one wants to be surprised with a bankruptcy notice from one of their late customers. Those calls should be seen as "fact-finding" missions to help you determine (or foresee) what is happening with your receivable item. Following your plan makes it less personal, and more policy.

Foresight will get you so far, but a good plan will help you search out the unforeseen!

Never Lose Money!

"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1." -
Warren Buffett

A lot can be said for simple advise. I had an uncle that frequently talked about money, and would give simple advice. He said, "Son your income isn't the problem, it's your outgo! If you have one less penny coming in than you have going out, you are in trouble". I love people that can simplify life and business!

Buffet's quote above while practically impossible, is at least a good mindset. I will never understand businesses that simply write off their bad debt without at least trying to recover it. It's like throwing money away with no thought. If you aren't going to at least try to recover the money, why even bother getting a credit application or setting terms?

In speaking with clients and potential clients, I "preach" a lot about having set, clear-cut, policies when it comes to credit and collections. Start with a solid credit application, set clear terms (expectations), and follow through. When your customer doesn't honor your terms and you do nothing, you may as well throw you credit and collection policy out with the invoice that you sent that customer. They are equally useless!

Credit and collections policy can be likened to disciplining your children: If all you do is issue empty threats, sooner or later they are going to learn that you do not mean what you say. You will have nothing but unruly "children" (customers or debtors) on your hand! Your credit policy becomes an empty threat. Set a policy and stick to it!

Which brings me to my ultimate point: we want to be a partof or an extension of your collection policy. Sometimes a/r personnel see us as a threat to their job. Our goal isn't to replace them but to step in and help after they have exhausted their internal efforts, as part of your policy. Once you determine that you have a debtor on your hands (somewhere between 90-120 days past-due), real outside pressure needs to be applied. Put our aggressive yet professional collectors to work for you now, before you lose that money entirely! You have to at least try to never lose money!

Neil's rule #1: At least try not to lose money; Rule #2: If you don't take action, your aren't trying; Rule # 3: If you have as much money as Buffett, retire to your own personal island and give advice about not losing money! Have a GREAT week!

Customer Complaints

As you may or may not know, I am part-owner of a commercial collection agency. Sounds fun, right? Well, just like whatever job, career, business, ball-and-chain, etc. that you have chosen, this presents it's own unique set of "challenges".

To lay a background for anyone reading this that may not know exactly what it is that a commercial collection agency does, we collect from businesses that do not pay their bills. This is completely different from "Joe Blow" down the street that didn't pay for his Yugo. This involves businesses. For example: Business X sells widgets retail to the general public. In order for them to be able to do that, they have to go find a widget manufacturer that will sell to them wholesale so they will have widgets to sell. Either a widget salesman approaches them, or they call the "sales hot line" of said widget manufacturer and agree to buy an amount of widgets. This usually involves a credit application of some sort, agreed upon terms of payment, and a delivery schedule of some sort. For our example let's say they agree on a quantity and a price and are given net30 terms. This means that the manufacturer is shipping them the widgets and the customer has 30 days to pay before interest charges start piling up. If at somewhere between 90 and 180 days, the widgets still aren't paid for, the manufacturer just might call someone like me to help them collect the money that is due. This is different from the "Joe Blow" scenario above in at least two ways: 1) This is a company, not an individual, and; 2) This is unsecured debt (The manufacturer cannot repossess the widgets, it is also likely that they have been resold by now as well).

Enter the commercial collection agency (In this case, Hamilton & Monroe): Our collector makes the first call during which they ask some pretty direct questions in order to determine their side of the situation, while making it clear that at this point we represent the client and have every reason to believe that they are right. After-all we do work for them.

Questions that we might ask at this point:

• Are you aware of the debt and it's age?
• Do you intend to pay voluntarily?
• If not, why? If so, why haven't you paid yet? (The answers to these questions might take the conversation into any number of directions.)
• At what address would your company receive Service of Process, and to whom should it be addressed?
• Can we arrange to have someone pick up payment in full today?

These questions will all be asked in an aggressive yet professional manner, so you can probably already agree that it could be seen as hostile. But, there may be one or more of the following that we already know:

• The customer has lied to our client several times.
• They have received X number of monthly statements in addition to the packing slip and original invoice (sometimes even additional copies of the invoice).
• The person responsible for paying may have been avoiding or dodging the client's calls.
• The mail (statements) may have been returned as undeliverable.
• The phone number may have been changed or even worse - disconnected.

So, what happens? Naturally, the customer is put on the defensive. They weren't expecting our call, so they are shocked. Or, maybe they were and they were "ready for us". Either way, now they are taken aback and they have a couple of things they have to do. First they have to project the blame elsewhere. This is where the excuses start. The widgets weren't shipped on time, they didn't work, they were the wrong color, they arrived damaged, we were charged for 1000, but only received 100.......the list goes on, and on, and on.....!(You get the picture). The second thing they have to do is find a way to get back in your good graces, because you obviously thought they were scum so you sent them to the "bad guys". Now this may not have been what you were thinking, but that may be their perspective. Which brings me to the point of this post (sorry to take so long to get here).

Now they have to call you, make us look like monsters, and get back in your good graces so that they can hopefully stall the process and lie to you about payment for another six months. Do you see where I am going here? We have had every lie that you can imagine told about us, and I am sure every collection agency can say the same. They range from accusations of cursing and swearing, to insulting the customers dead mother and beyond!

There are a couple of things that I want to make you aware of here, and I can't speak for all collection agencies because there are always exceptions, but we hold true to these principles. We are in business, and intend to stay in business, so there are lines that we refuse to cross:

• We will never yell or cuss at a customer of yours.
• We will never insult them personally.
• We will never badger or harass.
• We will remain professional at all times.
• We will not make empty threats.

We do not have the time nor energy (nor do we intend to spend the money that it would take) to defend a lawsuit. There are licenses and accreditations to loose, not to mention the business as a whole. We will not cross the line. Our very livelihood depends on it!

Please remember your customer is on the defensive and running scared because you have decided that it is time to take action. To borrow a well-known line from a well-known movie, "It's not personal, it's business!". It's not personal, and we will never treat it as if it is.

If you don't currently work with a collection agency, your agency is too aggressive (or not aggressive enough), or you would like to just give us a try. Please feel free to contact me, Neil Murray, at (800)313-9611 Ext.103 or neil@hamiltonandmonroe.com.

Thanks!!