In your personal or professional life, have you ever encountered one of those decision points where you just get stuck? You weigh a problem that needs a solution but there is no clear direction? Perhaps there is no right answer. Or if there is an answer, it is one we don’t want to choose because it is personally painful. Maybe it is a business or professional policy that limits choice, but we know that to follow the policy to the letter is not the best choice in a particular circumstance?
You are not alone. Even the most decisive people sometimes get stuck.
A case in point is the decision tree our clients often encounter when making the decision about when to turn accounts over to a collection agency like United Credit Service for professional collection action.
Often this decision is clouded by psychological barriers which delay an important action and ultimately cost a business uncollected revenue because a debt becomes harder to collect over time.
The reasons we encounter run the gamut. In the case of many of our smaller clients, the source of the reluctance to turn accounts over to us can be very close to home. That is, their customers live and work in the close-knit communities they serve. Extending the in-house collection process is driven largely by a sense that waiting just a bit longer will produce a ‘wished for’ payment. Unfortunately, once debts go pasts 90 days or so the chance of it being collected by the business drop considerably.
In the case of larger clients, it is often driven by efforts to save costs. That is, doing collections in house is felt to produce a more cost-effective recovery when compared to using a collection agency. So multiple calls, letters and so on delay the ultimate need to engage a collection professional. This costs staff unnecessary time and the business unnecessary expense, when a timely decision to turn the accounts over would encourage faster and more efficient payment.
Further, while collections costs can take a front seat for many larger clients, it is important to keep in mind that it is really the “net-back” number (what is actually collected less commissions) that is the most important. While it may seem at times that a lower commission rate will lead to savings, that is only a very small part of the formula needed to build a successful, cost effective collections strategy. While some companies may offer lower commissions their “net-back” numbers are low, so in reality the client is paying more driven by a lower collections success rate.
We have written quite a bit lately on consumer debt and the ‘tipping point’ we are approaching when the amount of consumer debt outstrips the ability to pay them. This certainly trickles down to businesses pretty quickly.
Joyce M. Rosenberg wrote in an article for the Associated Press (“Businesses find ways to deal with late-paying customers” September 1, 2019): "Small businesses are already taking longer to pay their creditors, according to the PAYDEX index. The index, which reflects payment activity for companies with under $5 million in revenue, fell 0.27% in the second quarter compared with the first three months of the year, according to Dun & Bradstreet Corp., which compiles the index. The index was up 0.15% from a year earlier.”
Additionally, “Customers and clients who are late payers or nonpayers cost small businesses time and money, forcing owners to chase down payments, hire collection agencies and attorneys and file lawsuits. If the economy slows or falls into recession in the near future, it could be even harder to collect from customers — businesses and consumers — who are short of cash.”
We encourage our clients, big and small, to review the barriers that may have been created which delay efficient debt collection. We are the professionals. Let us help!