From The Wall Street Journal

The economy has tanked, and even if sales are still chugging along, you're likely facing another vexing problem: Customers who pay late -- or never.

Small businesses are notoriously lax about their collections processes. Many worry about imposing strict payment policies or chasing deadbeat customers for fear they'll lose potential business. What's more, collecting money generally isn't too problematic when times are good.

But when the economy is bad, businesses that aren't savvy and aggressive about collecting payments get toppled by the domino effect of delinquent customers. Here are some strategies that collections experts say will bolster payment success in a bad economy:

Set Ground Rules

The most effective collections strategies are preventive -- steps you take before serving a customer. Businesses should have a formal, written payment-and-collections policy so customers know what's expected of them and the repercussions of not paying, says Len Sklar, a collections consultant in Redwood City, Calif.

This policy may include when payments are due -- preferably, no more than 30 days after a service or good is provided -- and how overdue bills will be handled. Sometimes larger businesses take advantage of small businesses with informal collections procedures. So laying out that you expect all your customers to pay within, say, 30 days, and explaining the consequences, offers more protection and makes it easier to communicate the problem with customers if they become delinquent. Your written policy might say, for instance, that invoices will be forwarded to a collections agency once they reach 60 days past due.

Businesses with customers that rack up large bills should consider requiring credit checks and credit references from prospective customers. They might also consider charging down payments, such as 25% or 50% of the total expected bill. Many small companies don't do this out of fear of losing customers. But that approach is counterproductive: Customers reluctant to undergo a credit check are often those least likely to pay.

"What happens is [businesses] are able to screen out customers they shouldn't be doing business with in the first place," Mr. Sklar says.

He also recommends that businesses consider offering more payment options, such as postdated checks, to make it easier for customers to pay. Of course, there are risks to allowing postdated checks -- but this can stave off the chance that customers might not pay at all.

Businesses should also keep a record of who pays the bills for each customer account and the bank and account information so they have that information if they eventually need it.

Offer Carrots, Sticks

Incentives help. If customers know they can shave 5% off their bill by paying early, they are more likely to do so. Similarly, a business is less likely to pay late if it faces a 10% penalty.

Ande DeGeer, owner of a Web-design business in Dawsonville, Ga., with roughly $40,000 in annual revenue, began charging customers a 50% down payment when she noticed payments trickling in later and later.

But there are still more than a dozen clients behind on payments, so she is now considering charging a 3% fee if they are more than 60 days late and 10% if they get beyond 90 days.

She thinks a late fee will give those late payers a little more incentive to prioritize paying her bill over another vendor's bill. "It used to be if I had one that lagged a little bit, it never concerned me," says Ms. DeGeer, 61. "Obviously, now it becomes a big worry."

Pursue Early and Often

One big mistake that businesses make is waiting too long to pursue late payers.

Research suggests that the longer you wait to collect, the less likely you ever will. Businesses should start contacting overdue customers within a few days after the original due date.

Phone calls are more effective than letters, says Michelle Dunn, a debt-collections expert in Groton, N.H. "When they're hearing from you -- even if they're not responding to you -- they're still putting your bill at the top of the pile," she says.

The first call should be a friendly reminder noting that the bill is overdue and asking for a deadline by which the payment will arrive. If a customer expresses an inability to pay in full, it can make sense to work out a payment plan. But if those payments continue to come in late, follow up with a few more phone calls -- or even stop by the customer's office if it's local.

Tell the customer you will unfortunately have to send the bill to a collection agency if you don't receive payment soon. Follow up your calls with notices by mail.

Ms. Dunn recommends using the big red-white-and-blue Priority Mail envelopes from the Postal Service for sending overdue-bill notices, since they relay urgency and garner more attention than a regular plain white envelope. "They always open that letter first," she says.

Keep to Your Word

If all your reminders don't work and a customer is 60 or 90 days overdue, it's time to offer some tough love and ship those invoices to a collection agency. You might try having the agency send "precollection" notices that threaten collections, which are cheaper than full-fledged collection procedures. But ultimately, if the debtor doesn't pay, you need to take action.

Collections agencies generally take a 30% cut of all collected sums. But at least you're getting something.

Kelly Spors covers small business for The Wall Street Journal.

101 Credit & Collection Tips

CREDIT AND COLLECTION TIPS & TECHNIQUES


Action strategies that you can put to work today in your business or practice. Collect More Money, Faster, for Less!

Credit and Collection Tips and Techniques

Collections today are said to be 95% psychology and 5% muscle. This booklet is a time tested collection of tips, techniques and thoughts that can aid you and your organization in collecting more money, faster, for less.

Much of what is contained in this booklet may be common knowledge and the types of things you and your organization are already doing on a daily basis. But, there are bound to be several ideas and action-oriented tips that, if you implement them, will help you do an even better job on your receivables.


101 CREDIT & COLLECTION TIPS & TECHNIQUES

Warning Signs of Potential Credit and Collection Problems:
1. Numerous inquiries about one of your accounts.
2. Customer switches banks frequently.
3. Client asking for clarification or proof of service more frequently.
4. Changes in client payment patterns.
5. Partial payments rather than payment in full.
6. Problems in the client’s geographical area.
7. Problems in the client’s industry.

Warning Signs Your Sales Force May See First:
8. Order levels shrinking.
9. Empty shelves in warehouse or retail floor.
10. Plant operating at less than capacity.
11. Your customer’s major customer is trouble.
12. Loss of key staff members.
13. Large layoffs or reductions in hours.
14. Restricted tours in areas of facility.

Warning Signs of Potential Bad Check Problems:
15. Checks with printed numbers under 300.
16. No preprinted name or address on the checks.
17. Starter checks with no printed information.
18. Address on check and ID don’t match.
19. No picture ID or expired picture ID.

Why Collection Problems Occur:
20. Fear of loss of future business (don’t pursue delinquencies
actively for fear of losing future business).
21. Absence of credit and collection policy or unclear policy.
22. Lack of training of the collection staff.
23. Reluctance to use outside collection sources early in
delinquency cycle.

Seven Reasons to have a Formal Written Credit & Collection Policy:
24. Clarifies who does what.
25. Facilitates training.
26. Supports actions.
27. Prevents unauthorized changes.
28. Promotes consistency.
29. Reduces wasted time.
30. Answers 95% of the routine questions.

Develop Your Credit and Collection “Skills:”
31. Two basic concepts: (1) Time is the greatest deteriorating factor on the collectability of an account, and (2) You will never have enough resources to collect all your delinquencies.
32. Implement an early referral or cure program to maximize your internal and external recoveries.
33. Early referral programs, in addition to collecting, help you identify and single out no-pays from slow-pays and treat each accordingly.
34. Accounts 60 days or less of age are over 80% collectible.

35. Accounts over 90 days of age are typically less than 50% collectible (internally).
36. Working accounts under 60 days delinquent will typically maximize your internal yield and recovery. Use a third party for those over 60-90 days delinquent while focusing internal efforts on the easier slow-pay accounts.

37. Develop and use a “60-day Pursuit Program.”
• Concentrate all internal efforts into the time frame where they are most profitable.
• Start on your delinquents early - contact them often in the 60-day period.
• Get progressively stronger as the 60 days go by.
38. Elements to use in the 60-day Pursuit Program - copies of statements/invoices, letters, sales visits, phone calls, suspend credit.
39. After 60-90 days your options are: continue to pursue internally with reduced results, write-off the account, use small claims court, attorney or outside full-service collection agency.

Collection letters:
40. The most easily automated way to collect money.
41. Can’t solve problems or determine if a payment problem exists.
42. One-way communication.
43. Subject to misunderstanding.
44. Collection letters maintain the dialogue with the debtor.
45. They are inexpensive.
46. Sets the stage for your next action.
47. Lets the debtor know you haven’t forgotten about them.

Other Considerations in Using Collection Letters:
48. Your bill is not the debtor’s only mail.
49. Your letter is competing against professional mailers.
50. Change the look of each mailing.
51. You must discourage the debtor from discarding your envelope.
52. You must encourage the debtor to open your envelope.
53. Increase the odds of positive results from your letter.
54. Hand address a blank envelope – they’ll open it up!
55. Add “Address Correction Requested” and “Forwarding
Postage Guaranteed” to the envelope.
56. Mark envelope to encourage opening: “Urgent,” “Personal,”
“Confidential,” “Do Not Fold,” “Personal & Confidential.”

57. Motivate the debtor to want to pay with appeals in your letters:
• “Save finance charges.”
• “Keep your good credit record.”
• “Remain a valued client.”
• “Avoid a bad debt record.”
• “Avoid outside collection agency placement.”
58. Make collection letters progressively stronger.

Telephone Collection Calls.
59. Telephone contact is more costly, but much more effective.
60. Calls should supplement letters and follow up on what was
said in the letters.
61. Being two-way communication, calls can identify and solve
problems.

62. Sell and keep control on the collection call.

Making the Collection Call:
63. The collection call format:

• Identify the debtor.
• Identify yourself.
• Demand payment in full.
• Psychological pause.
• Determine problem or objection.
• Find solution.
• Close the call and get commitment.

64. Collection calls have three phases:
1. Opening Phase.
2. Negotiation Phase.
3. Closing Phase.

Opening Phase Tactics:

65. Verify the debtor’s identity. (I’m calling for [name]…is this
he/she?)
66. Verify debtor’s address.
67. Identify yourself.
68. State the debt owed (You owe us $567.35…).
69. State the type of action you desire. (“I need payment in full
today.”)
70. Pause and let the debtor respond.

Negotiation Phase Tactic—4 Steps (in this order):
71. Step one: “I must have payment in full today.”
72. Step two: “When can you send payment in full?”
73. Step three: “How much can you send today?”
74. Step four: “When can I expect a payment?”

Closing Phase Tactics:
75. Collector recaps what is going to happen and when.
76. Payments are always expressed as dollar amounts.
77. Points in time are always expressed as dates.
78. Debtors must confirm that they understand the next action on
their part.

Selecting an Outside Agency:
79. Always use a full-service agency as opposed to letter-
writing services etc.
80. Look for agencies that report accounts to all three major
credit reporting bureaus.
81. Select an agency that works on a national basis rather than a
“local” or “regional” basis so that debtors will be pursued even
if they move out of your local area.
82. Utilize an agency that has optional litigation services available
if a lawsuit becomes necessary.


Twenty More Tips - Especially for Medical Practices:

83. Conduct new patient pre-registration (and credit analysis) by phone or mail in advance of the first office visit. This reduces bottlenecks in the office and gives time for a credit investigation.

84. Secure credit bureau reports on new patients with poor credit history - identify and solve payment problems before services are rendered.
85. Potential “danger signals” on new patient registration forms:

• Address - transient or a P.O. Box only.
• Telephone - none or unlisted.
• Business address/telephone - none or same as home.
• Occupation - none.
• Referral - none, “a friend,” “medical society,” or “yellow pages.”
• Marital Status - divorced or separated, young, single persons.
• Age - very young or very old.
• No insurance coverage.
86. Doctor hopping (if known).
87. “What bills do you have that are more important than your health?”
88. Collection ratio - 92% to 95% recovery is average to good for
most types of group practices.

Special Medical Collection Call Debtor Appeals:
89. “I’d guess you made several thousand dollars during the last
few months, yet we have received only one small payment.”
90. “We helped you in a time of need, and in good faith, we expected to be paid in a reasonable time.”
91. “I know that you want to protect your credit so you can feel comfortable should you or your family need to return.”
92. “Add to a current loan (to pay us off)…or let some other bills go as you have ours for the past few months.”

That’s 101 Credit and Collection Tips and Techniques that, when implemented effectively, can dramatically improve your cash flow and translate into improved profitability for your business.

Call Today
If you would like and Accounts Receivable Analysis, at no cost or obligation, of your current credit and collection procedures, or if you would like assistance with any of the tips and techniques in this booklet, please contact:

Bob Blackburn
Cash Recovery Network, powered by NCSPlus Inc.

Toll-Free (800) 363-7215 Ext 3751
Email: bblackburn@ncsplus.com
Web: http://www.cashrecoverynetwork.com

Know the Law
Debt Collection, Collection Agencies and Credit Reporting Bureaus are highly regulated. Complete copies of the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA) and a specimen HIPAA approved agreement for healthcare providers are available at: Web: http://www.ncsplus.com/regulations





101 CREDIT & COLLECTION TIPS & TECHNIQUES
_________________________________________________
© Copyright 2008, National Credit Systems, Inc.and Cash Recovery Network All Rights Reserved.

What the Traditional Collection Industry Doesn’t Want You to Know

The Myths, The Realities, and a Better Way:

The amount of money owed by consumers to creditors is climbing, currently estimated by the Federal Reserve at an alarming $7.4 trillion dollars. Business debt is equally high, at over $8 trillion.

What does that mean for you, the business owner and creditor?

Every business, if it is to meet its current cash flow needs, must have ongoing and effective cash flow management. National Credit Systems is a professional cash-flow management system that enables American businesses to survive this cash-flow crunch.

So what are your options to recover this outstanding debt?

Conventional collection agencies charge their clients from 33-to-50% of the amount collected, which is often more than the client’s profit margin. Other traditional collection methods are equally expensive, or simply too flawed in their design to function effectively on the creditor’s behalf.

Let’s take a closer look at the myths – and realities – behind common conventional collection strategies.

Conventional Collection Strategies

Historically, business people have been able to turn to six kinds of services to help them collect delinquent accounts and bad checks:

1. Traditional collection services
2. Credit bureaus
3. Lawyers
4. Percentage Collection Agencies
5. Letter Writing Agencies
6. Check Guarantee Services

Let’s look at each in more detail, and debunk the myths that surround them.

Myths about Traditional Collection Agencies and Credit Bureaus

Myth: Traditional Collection Agencies charge a fair percentage to collect outstanding debt.
Reality: No. In fact, you should be prepared to pay between 33% and 50% of the amount collected by any credit bureau or traditional Collection Service you hire.

Myth: Hiring a traditional collection service or credit bureau to collect your outstanding debt will result in a much higher collection rate than any other method.
Reality: Their recovery ratio is shockingly low, only about 17%, leaving the creditor with net cash of less than 10 cents on the dollar.


Myths about Percentage Collection Agencies

Myth: Traditional percentage agencies will work each account diligently.
Reality: The percentage fee structure used by agencies, credit bureaus and attorneys leads to “skimming” of accounts. In other words, since the agency is paid out of what it collects on an account, they typically concentrate their efforts on those easier, larger, newer, local accounts, and limits efforts on the smaller, older and out-of-town accounts. This results in even lower recovery ratios.

Myth: As the business owner and creditor, I am in control of all my outstanding accounts.
Reality: Not so. Once a creditor turns over an account to a conventional agency, all further contact is between the debtor and the agency. The creditor is out of the picture entirely. If the agency ever manages to collect, the creditor still must endure a “clearing period” before getting paid.

Myth: Traditional agencies will treat my debtors with respect, so we can maintain a business relationship in the future.
Reality: When a business assigns an account to a conventional agency, it will most likely never do business with that debtor again. The reason: creditors often delay turning accounts over to a third party hoping to avoid paying collection fees. By then, accounts have seriously deteriorated and the agency employs harsh collection tactics, which often alienate the debtor, and usually precludes any chance of sustaining the customer relationship.

Myth: If your bad debt is not more than a year old, it should be easy to collect.
Reality: The longer you wait , the less you are likely to collect.

Myths about Lawyers
Myth: Lawyers are effective because they can threaten litigation.
Reality: Most lawyers are not collection attorneys, and are not equipped to handle collections. Some lawyers do specialize in debt collection however, they:

• can’t affect credit records.
• don’t have people in the field.
• won’t work small accounts.
• skim accounts profusely.


The outcome: The customer receives less than half an effort. Attorneys doing collection work are either doing a client a favor, or charging such a high percentage that they consume the creditor’s profit margin. Cash flow and the ultimate recovery ratio are reduced.

Myths about Letter Writing Services

Myth: Letter writing services are a good option because of their low cost.
Reality: Letter writing services (sometimes known as “flat raters”) sell their clients a series of reminder letters sent to debtors. Although low in cost (averaging $7 to $10 per account), the Fair Debt Collection Practices Act requires them to disclose to the debtor in the letter that the reminder service:
• can’t affect credit records.
• aren’t a collection agency.
• have no authority to collect the debt
• Won’t take any action, legal or otherwise, regarding the claim.

Consequently, they are ineffective. Even worse, hard core debts (the ones the creditor is most interested in collecting) simply deteriorate further as they age during the 2-to-3 month letter writing cycle.

Myths about Check Guarantee Services

Myth: Using a Check Guarantee Services is a good option.
Reality: Some retailers use check guarantee or check insurance services to protect themselves from bad check losses. These services generally charge from 3-4% of the gross amounts of the checks, but only about 2% of the checks are bad and are replaced by the Check Guarantee Service (called the “loss recovery”).

The problem with these check insurance services is that they are quick to reject checks that are not properly submitted (e.g., the check writer does not have two forms of identification). Only two of every 100 checks ever bounce after being re-deposited. The creditor pays the premium anyway.

Now, let’s take a look at a better way to collect outstanding debt:

The ideal way to collect debt is to utilize a Cash Recovery methodology. The system would have you the merchant spending time collecting the 15-60 day late (this is the time they are most collectable, and then shifting the accounts to a professional service that charges a small fee per account ($9-$60 per based on average balances would be fair.) This service would have all the money remitted directly to the merchant and provide complete accountability on each step of the process. Anything short of this would not be beneficial in the long run. Once this system has a 120 days to mature you will see less and less accounts getting to the 60+ day late mark!

This is not a “simple” solution. It will take a focus of effort and a paradigm change to make it effective. I look forward to hearing from you on your progress. Please email me with any questions bblackburn@cashrecoverynetwork.com.




© Cash Recovery Network 2008

Tips for Collecting Receivables

How to get the money flowing again, in spite of the economic slowdown.

If you are reading this, you are already in the top 20% of business managers/owners who have recognized how key the receivables cycle is to any business.

As our market enters this slowdown, it is vital to adjust our operations to maximize profits. The rules have changed, and the lagging 80% are still playing by the old rulebook.

Liquidity is the new Leverage.

It has been a credit free-for-all for the past few years, so long A/R cycles have not been a problem. Businesses can just borrow any working capital necessary in order to stay afloat, pretty inexpensively.

It has been easier and cheaper to just let the money come in slowly, and borrow to make up for it.

That is no longer the case. As banks hit the brakes on lending, it has squeezed consumers who no longer have open home equity lines, or credit cards. In response, these consumers tighten their own spending.

Businesses are getting pulled from both ends. Many banks have frozen all commercial lending to wait out this economic storm, and since consumer spending is down, your sales are likely lagging as well.

The catch phrase of the 90’s was “other people’s money,” leveraging a small amount of assets with a large amount of borrowed capital to bring in large returns.

This decade, the key is “positive cashflow”. Being able to cover all costs with profit from operations rather than borrowing, and funding future growth from within.

But how?

Every business, no matter how complex, operates to create a margin between cost of goods (or services) sold and the price the buyer pays. Once this margin is determined at the point of sale or time of service, it cannot grow. It is set.

It can, however, decrease. As time goes by, that number gets smaller as your business spends money on A/R personnel, phone calls, letters, stamps, overhead, etc. A recent Wall Street Journal article reports the average cost of internal collections at $15-20 per round (one phone call, one letter) when all overhead and employee time is factored in.

Also, as accounts age, there is a predictable rate at which their collectibility decreases. The newer the account, the more likely the debtor is to pay. As accounts age past 60 days and then 90 and 120, they become extremely difficult to recover, and require huge amounts of time and resources to do so.

If you are extending credit, if you are billing the customer rather than collecting payment immediately, you have, by default, created a separate profit center within your own company. You now have a completely separate service that you are providing (one of Credit Provider), in addition to your “main” business. But this profit centers’ job isn’t to create new profit, but rather, to protect the profit from your core business.

How much work do business managers put into managing their sales numbers and costs? Quite a bit. But how much attention is given to this business-within-the-business? Not enough.

How do we protect the margins in this sub-business?

Yesterdays business model approached accounts receivable as two distinct activities: Internal and External. Internally, businesses used traditional means to collect for as long as possible before throwing those accounts into the External effort, essentially expecting nothing to come from it, and anything that did would be viewed as a bonus. (The Salvage Yard approach)

Today’s progressive A/R models make no such distinction. There is an external element, but it is fully integrated into the internal operation.

The biggest mistake most businesses make is to focus an inordinate amount of time and resources on accounts that are older than 60 days, and many times older than 120 days!

By focusing on the old accounts, you are letting the new accounts sail right through the early stages when it would be very easy to collect the full amount due. These “young” accounts bleed money out of them every day they are not collected.

Unfortunately, this is a cycle that is difficult to break, because if you do not collect it yourself, you have to hand it over to a traditional collections agency whose fees eats up the profit margin that you are trying so hard to protect. In addition, their recovery rate is typically very low, between 12-17%.

Principals for collecting young accounts (15-45 days past due)

The “Pleasant Portion”

The first principal to implement is this: the younger the account, the easier it is to collect. Many firms spend quite a bit of time on older accounts, and not so much on newer balances. The opposite should be taking place! The amount of time and energy you apply to these aging accounts is much better invested in the young accounts where you can still catch a large percentage before they get too old.

The second principal is that it is very easy to throw away a “balance due” letter, but very difficult to tell someone you aren’t going to pay. That is why any successful accounts receivable plan must include regular phone calls to everyone with past due balances. Get them on the phone, and get them to pay. Even the most stubborn debtor has a difficult time with a real live person on the other end, asking in a pleasant way, just how best to work out a payment.

Principles for collecting aging accounts (60 days+)

“Firm Portion.”

These debtors have demonstrated that they are going to be tougher nuts to crack, and have not responded to gentle reminders.

You must balance the necessity of explaining the firm “consequences” to unpaid balances, without resorting to outright threats that will alienate this customer. Reminders like “In order to keep you as a valued client, we would like to set up a payment plan to bring you current.”

The main rule here is, do not get off of the phone without setting up a payment, one for on the spot, or for a future date. Get a check number, credit card number, anything that will allow you to process payment. Again, do not get off of the phone without getting this information, this is difficult for many people, so be sure to have someone with the right type of personality making these calls.

It is also important that you do not imply or explicitly threaten any course of action that you are not able to follow through on. The Federal Fair Debt Collections Act is very specific and inflexible on this point. Be sure that all your correspondence follows the requirements of this act; if you are out of compliance the consequences can be severe.

The Key:

At the crossover stage, the 45-60 day late stage. You have a crucial decision to make. Continue to chase these accounts as they age to try to catch what may be caught, or turn them over to a collections firm?

The problem is, most collection firms treat your relatively young (by collections standards) debts as though they are 120-180 days old, trickling a few letters or calls here or there, catching what they can, and throwing the rest in the trashcan.

If you do it yourself, and devote all your time and energy to these accounts, you lose out on what you would be saving by catching the younger accounts before they become difficult cases.

So what’s the right call?

Outsourcing.

Instead of turning to a “salvage yard” collections firm, there is an emerging type of collections firm that specializes in the early to late stage collections, but operates, in effect, as an arm of your own Accounts Receivable department.

These firms operate on low, fixed fees and instruct debtors to remit all payment to your firm directly.

Through specialization, these firms are able to keep the cost of collection extremely low, and maintain very high success rates.

Charge for it.

You will need to check your state laws, but in most areas you are permitted to charge the customer if the account must be placed into collections. This must be posted ahead of time, but if you are able, then you can pass the cost of the outsourcing along to the client.

If you do this early enough, the collection firm will still have a high probability of recovering a large portion of what is owed, and if the customer is covering the fee, then what you have done is re-focused your internal activity on younger accounts, increasing the collection percentage, with no additional cost because it is the staff you already have in place, and increased the outsourced collection percentage, at no additional cost, because the customer is absorbing those fees.

If you are able to implement these keys, you will see your profits growing once again, because they are being protected by you’re A/R processes.

For more information on progressive collection methods and firms that operate as progressive A/R outsourcing units, visit

www.cashrecoverynetwork.com

You will find valuable reports such as,
What your Collections Company Doesn’t Want you to Know
and The 6.5 Questions I should be Asking my Collections Company

Bob Blackburn
Managing Director
The Cash Recovery Network
www.cashrecoverynetwork.com
bblackburn@cashrecoverynetwork.com
© Cash Recovery Network 2008

What is a Cash Collection System?

How the new economy is driving business to redefine collection methods.


Do you remember the show The Little House on the Prairie? I saw a re-run on a station my kids were watching, and it took me back to when I used to watch it as a kid myself. You know the show; it follows young Laura Ingalls’ life, as she grows up in a frontier town with her family in the late 1800’s.

What struck me was one scene in particular when the schoolteacher was at the general store, picked out some dry goods, and asked the shopkeeper to put it on her account. “Sure thing” was the reply.

No credit check, or application, not even a signature.

He took her at her word because he knew her. His kids were in her class. They probably knew all the same people, attended the same church on Sundays, and so on.

“Things have really changed.” I thought to myself.

But have they really?

As business owners we know very few of our customers by name, and even those we know, we probably have very little contact with outside of our business. We don’t know their kids, or friends, or what they do on the weekends. But, if we are invoicing for goods or services, we still let them tell us “put it on my account.”

No credit check, or application. We do get a signature (at least we’ve learned something)

This leaves us in an interesting position. We have taken them “at their word” that they will pay us, but we really don’t know if they will.

As a business owner or manager we devote huge amounts of thought, time, and energy to creating a profit through our business. But, then we literally give our product or service to the customer with little more than a handshake as a promise to pay. We are on the line for not only the profits we’ve earned, but also the cost of the goods or services they have consumed.

So, don’t extend credit, right?

Tempting, but wrong.

In many industries this just isn’t possible, and even if it is possible for you, it is not advisable, since by cutting off credit, you are likely to lose those customers that typically rely on it for your services.

The answer is a Cash Collection System.

Traditionally, businesses have worked accounts internally as they go from 15 to 30 to 60 days late, all the way up until 120 days late or more. Sending letters, calling, reminding, begging for payment.

Once the business gives up all hope, it throws the account into the salvage yard collections firm. You know the type. Instead of giving you money for old cars or cans or copper pipe, they give you money for your old accounts.

Usually they net back around 10 cents on the dollar to your business. That is pretty good since they are making something out of nothing, right?

Wrong.

The lie these salvage yard collections firms rely on is just that: that these accounts are “garbage.” They do what they can (which isn’t much) and keep a huge fee for the trouble.

And, just like the days of the frontier shopkeeper, the days of this salvage yard collections firm are gone.

Progressive businesses have moved towards the Cash Collection System model.

Instead of repeated and extended attempts to collect on the accounts internally, waiting until there is very little chance of getting a significant payment, today’s A/R managers are integrating an external Cash Recovery company into their internal operations.

This is why it works:

Accounts that are less than 30 days old are very easy to collect, and should remain the focus of internal A/R efforts. 30-60 days late starts to get difficult, but is still within the scope of what your staff should be focusing on.

Once the 60-day mark is reach, however, the account should be placed into the cash collection matrix.

Instead of a traditional contingency fee collection company, these progressive companies charge a flat rate and operate as an arm of the A/R department. You are able to submit accounts online, and track the progress. All money should be sent to you directly, with nothing taken off the top as with salvage yard collections agencies.

Your business is able to afford to submit accounts much earlier in the cycle (60 days instead of 120 days or later), because the account balances aren’t getting swallowed up by fees. And, because you are able to submit the account earlier, the recovery rate is much, much higher because they haven’t gotten too old to collect effectively.

It has all the advantages of doing it yourself (low cost, easy to manage, and effective) with the advantages of a true collections firm (specialized service, compliance with the Fair Debt Collections and Practices Act, and the ability to report to all three major credit reporting bureaus.)

Further, because you have handled these accounts through the cash collection system, you can focus 100% of your efforts into the pre-60 day late accounts, increasing the collection rate there, as well.

The best part is, if you live in a state that allows you to charge for collections (like my state does, Virginia), then you can pass the small fee that is charged for this service right on to the customer, significantly raising both pre and post 60 day late collections without any additional cost! That translates into higher profit to your bottom line just by re-defining roles and putting in place an outsourced cash recovery system.

This truly is the new way to handle collections, and this approach is going to become increasingly crucial as the economy continues in uncertainty.

Maybe we can get back the same confidence that shopkeeper had, knowing that we have the system in place to back up the handshake.


Bob Blackburn
Managing Director
The Cash Recovery Network
www.cashrecoverynetwork.com

© Cash Recovery Network 2008

6.5 Questions to Ask YOUR Collections Company

The 6.5 Questions you should ask your Collections Company


1. What is my current Collections Percentage after your fee?
2. Can I get a daily accountability on my accounts via the Internet?
3. What steps do you take NOT to ALIENATE my customer?
4. Do you have a process to touch EVERY account regardless of size or location?
5. Are you properly licensed with ALL the credit bureaus on a NATIONAL basis?
6. Does the money you collect for me go directly to me or to you?
6.5 What are my GUARANTEES with your firm?


These questions should assist you in evaluating your current collections experience. If you receive answers that resemble these.....Call Me!

1. Less than 25%
2. NO
3. NOTHING IN PLACE
4. No
5. No
6. The Collections Company
6.5 What Guarantee?

We need to talk if these are the answers!

Please allow us to provide you a FREE Accounts Receivable Analysis to determine the best course of Action!! Email bblackburn@cashrecoverynetwork.com
to get a Free Report on: What Your Collections Company does not want you to know!

Its Not Just Medicine Anymore....

I was reviewing a client’s Accounts Receivable this past week and realized in the middle of looking at various accounts and payment histories, that my large medical practice client really was in 2 distinctly different businesses.

Obviously the first was “MEDICINE”;
The second business was that of “Credit Provider”!

It was with this particular business that they were most uncomfortable. You see in this economy, with times being so tight, being a “Credit Provider” is not necessarily an advantaged position! Additionally the practice was treating collecting their money in the traditional “Salvage Operation” approach.

The Salvage Operation approach usually allows the practice to send bills from 15-90 days past due, make an in house call or two and then send to a Traditional Contingency fee agency, where you lose between 25-50% of the money and usually 100% of the control or just write it off.

Difficult times call for difficult measures, and these are difficult times!

What can you do differently?

Initially you can be realistic and understand we are in a different economic situation than we have ever been. Everyone is tightening their belts, and many are just adopting a “weather the storm” approach to their accounts receivable.

The problem is, your accounts payable doesn’t slow down, just because your receivables are.

In changing markets, it is always the innovators that stay afloat. Medicine makes astounding advances every day, and you must devote significant effort to study and training just to keep up. But, the other half of your business, the half that is responsible for collecting your profit, operates the same today as most Accounts Receivable departments have been operating for decades.

Why is this? Because, until now, progressive techniques have not been required. With money flowing freely, it has been relatively easy to collect on balances owed. But now, with money tightening across the country, it has become vital to medical practices to implement a more proactive approach to Accounts Receivable.

The first principal to implement is this: the younger the account, the easier it is to collect. Many practices spend quite a bit of time on older accounts, and not so much on newer balances. The opposite should be taking place! The amount of time and energy you apply to these aging accounts is much better invested in the young accounts where you can still catch a large percentage before they get too old.

The second principal is that it is very easy to throw away a “balance due” letter, but very difficult to tell someone you aren’t going to pay. That is why any successful accounts receivable plan must include regular phone calls to everyone with past due balances. Get them on the phone, and get them to pay. Even the most stubborn debtor has a difficult time with a real live person on the other end, asking in a pleasant but firm way, just how best to work out a payment.

The last, but most important principal is this: You must, must have an experienced and successful collections company on your team to take care of your tough cases. The only way these strategies can be implemented, and the only way you can afford to focus on young accounts, is if you have a collections company that can catch everything that gets through your net.

It is also crucial that your collections company shares your progressive approach. Most companies out there are utilizing the same techniques and fee structures that have been predominate in the collections industry for years.

In order to turn your in-house team into effective “financial counselors” it is imperative they are “in-control” of all the accounts. By approaching collections as SALVAGE, you give up control. If you partner with an organization that charges a small per account charge and drives the debtor to your “financial counselors” and has the debtor remit 100% of the money to your organization, then and only then are you “in-control”!

In today’s economy and likely over the next three years, if you continue “business as usual”, you are likely to get burned and not get the result you deserve.

If you would like the FREE REPORTS on What your Collections Company Doesn’t Want you to Know and The Questions I should be Asking my Collections Companies, then drop an email to me at bblackburn@cashrecoverynetwork.com