Collect Your Own Debt for a Business & Avoid Third-Party Debt Collection Services: A Guide to Do-It-Yourself
Why Collect Your Own Debt?
Collecting the money that is owed to your organization, in this day and age, is more important than ever. With the economy spiraling,
more and more debt is piling up. The winners will be the third-party collection firms that will eventually recover your money, and that will be for a substantial fee.
Over my twenty years as a credit manager and recovery specialist, I have developed unique ways in which I investigate prospective credit risks. A thorough pre-investigative routine is the key to minimizing risk. I will outline the techniques I’ve developed to help you profile the risk and assist you in determining whether or not the risk is acceptable. These research avenues are free and available to anyone who simply knows where to look. I have been able to balance the line between growth in customer base while minimizing the delinquencies on the aging reports. Being too liberal in granting credit looks good on paper initially; being too conservative restricts growth.
I have also become quite adept at recovering money in the third-party collection industry. When dealing with an individual versus an organization, different tactics are needed. More importantly, the psychological foundation of that individual is the key to getting him to pay you. I have discovered ways that allow me to become a major obstacle in the life of a person who owes money to my clients. I have developed a step-by-step process that yields a tremendous amount of recovered debt. All of the techniques are legal as well.
Collection firms are bound by the FDCPA (Fair Debt Collection Practices Act) and are limited to certain laws that govern how they collect your money. They are still extremely successful at generating revenue, but the key here is that a business or corporation is not governed by these laws because it is not a third party when it collects its own debt. This gives the original creditor and its accounts receivable staff more opportunity to achieve successful debt collection rather than pay a collection firm to do it.
Face it: I made more money on the third-party end because I was compensated on a percentage of the recovery rather than as a salaried in-house accounts receivable manager. As an individual became more effective at recovering money, the earning potential was unlimited. It didn’t take me long to figure out that if I was going to be stuck behind a desk all day doing this job, I needed to make sure that the rewards were there. I will outline these techniques and help you avoid paying substantial fees to an expert. These same techniques will help people working in the third-party collection industry become more successful as well.
In this article I will concentrate on an existing debt that is owed. Whether you are the original creditor or a third party collector, the approach is the same. In the land of automatic dialing systems and impersonal collection calls, companies utilize volume bombardment to yield recoveries. The problem with this type of approach is that there is nothing to separate you from any other debt collector that is contacting the person who owes money. It’s easy to avoid the automated calls and form letters. They don’t initiate any urgency, which is the key element when attempting to collect your money.
The Investigation
When I initially receive an account I investigate the individual. This also is important when collecting business debt in-house because ultimately there is one individual who is responsible for the accounts payable, and that’s the owner. When investigating a business, no matter what state, you can find the Secretary of State listing online that will give you the owner’s name, or better yet, the attorney for the company. These listings have valuable information ranging from the Statutory Agent’s name and address–which is oftentimes the home address–as well as any other liens that have been filed against him.
To go one step further, I take that owner’s name and run it through the county’s Clerk of Courts civil listings to build a character profile of that individual. This information often lists the individual’s judgments that have been levied against him personally. They are listed by date as well, and you can determine whether or not this person’s indebtedness is a recent occurrence or relating to circumstances in the past. I then check county property records to see if this individual owns property, or more than one, and check values. It’s a good indicator of how that individual is living even though he isn’t paying you. I then use search engines to obtain any other useful information to help me build a profile of this individual. It is amazing the amount of imformation you can find on any business, including the smaller ones. There are companies that charge fees for some of this research like Dun & Bradstreet, but the fees are on the high side and you don’t always get a complete profile of the business. This organization does not list each debt they carry, and businesses will often pay those creditors that report to Dun & Bradstreet in an effort portray credit worthiness. Unfortunately some smaller companies that are owed money can’t afford the membership fees to list their debt so they are hidden from credit managers when evaluating them.
Image Credit: Wikimedia Commons, Dollar Sign by John Sauter
Continue to Page 2 for the best approach on third-party collection
The Approach
I always, as a courtesy, contact the person responsible for the accounts payables. I first contact the business and request a fax number for that department and fax a copy of the invoice or invoices. Inevitably, when you first contact the person who is in charge of paying the bills, he is going to ask for it anyway, claiming he never received it. This is the first stall tactic you’ve eliminated.
I then call the next day because by then the invoice has made its way to the appropriate person, and he now has to address your concern. That person will either be honest with you and tell you the financial status of the company or stall you by telling you he needs to get it approved. I ask for a commitment from that person and we agree on a date when he will call me back with a follow-up phone call with a payment date. Ideally, you reach an agreement and he follows through.
Pushing the “Up” Button
If I have been involved in trying to collect the money for thirty days without a commitment or if I receive broken promises, I take the investigative information that I gathered initially and begin contacting the owner or statutory agent. Surprisingly, I’ve never really had to contact these individuals by phone because the manner in which I initiate contact with them gets their attention. I draft a personal letter to that individual and fax it to his attention. I clearly outline the measures already taken to reach a resolution and ask for his assistance. I give the owner one week to respond. I assume that the person will receive it because I wouldn’t expect others to hide it from him if it’s addressed to him personally.
One of two things might happen at this point. That accounts payable person you’ve dealt with sees it and contacts you with payment, or the fax falls on deaf ears. It’s always a good idea to ask that he expedite the sending of the payment via an overnight carrier if he calls you with a commitment. This tells you immediately if he is serious or buying more time and tells him at the same time that you don’t necessarily believe his intent without actually having to state it.
If the response to your fax sent to the owner is no response, then you have to assume that he is either ignoring you or still doesn’t know you are looking for your money. At this point I mail a letter to the address I obtained from the Secretary of State. I include a copy of the letter I sent to AP and advise that individual that this is their final notice and make a demand for payment within ten business days. In most cases, you have just become the squeaky wheel and he wants you gone. It’s irrelevant at this point whether or not he was aware of your efforts to get paid. Now you have “bothered” this person, where he doesn’t normally have to deal with these issues; he wants you to go away.
If the efforts you’ve made to this point still haven’t resulted in payment then you now know that the company is choosing to pay someone else they consider more important than you, and it’s probably their vendors. There’s one final weapon left to really grab someone’s attention–and that’s a Small Claims Court filing form you can download from any court’s home page. I fill it out in great detail listing the business as well as the owner / agent as the defendants and sign it. Again, I fax it to all parties I’ve dealt with and again mail it to the residence. This is a bombshell; the company knows that the filing fees are cheap and if they don’t pay up now there will be additional charges added as well as your ability to list the judgment with the Secretary of State. If this doesn’t yield payment then it’s time to think about writing it off.
Image Credit: sxc.hu, fax keyboard by sion
Third Party Initial Contact Techniques
If you have been assigned a personal dept to recover, all the investigative measures outlined above will profile your debtor. The most important information you want is whether or not he owns property and where he is employed. Both property and wages are attachable in most states, and individuals are more likely to pay you if they have something to lose. Credit reports are pretty good tools for assessing someone’s ability to pay. It will tell you how indebted he is, and you might see enough solid credit history where he can borrow funds to pay you rather than finance his debt with small monthly payments. People that owe money generally owe more than one creditor.
Separate yourself from the average collector by grabbing their attention. I do this by first selecting an important, authoritative sounding name. Most states allow debt collectors to use nicknames rather than their real names for obvious reasons. These examples I’m about to give are purely fictional and are in no way meant to reflect on real individuals: If you have messages from people named Sheldon Forsyth and David Smith, who is more likely to get a call back? The name you chose is important in getting the initial curiosity of the debtor wondering why this person is calling him.
The second most important thing you need to do when speaking with the debtor is to be extremely professional. Make that name and your tone and word usage all match, building a credible persona. Clearly state why you are calling and what he needs to do. Always instill urgency and demand that any payment made is to be done in an immediate fashion–overnight mail, over the phone check, etc. You will receive more runaround from an individual who owes money because once he talks to you he knows who you are and why you’re calling; you generally get one crack at them to make an impression, so make it count. If the person does not commit to payment you need to take away all emotion. Most debt collectors are on commission and tend to get upset if they don’t get a promise to pay. That tells the debtor you have more to lose than they do! I always advise the debtor at that point that he really needs to think about his decision and that creditors have certain rights to collect their money with or without their cooperation. This is an extremely effective psychological statement designed to get someone wondering what’s going to happen next?
Finally, always insist that the balance be paid in full. If you know a person’s credit worthiness, then tell him you think he has the ability to get a loan. If they he offers installments turn them down. That’s something that can be addressed at a later date. I always know that if I create an “emergency” scenario, just about everyone has someone to turn to for help. If you don’t ask for the full payment and agree to partial payments up front, you totally take away the possibility that he will get it from a friend or relative to pay you in full.
Image Credit: sxc.hu, coins, by iprole
