Debt Collection

A mature and businesslike approach is, of course, understood. Large outstanding obligations, especially those that significantly affect the seller, produce emotional situations in which, in unguarded moments, the management is inclined to threaten the deadbeat. If an action is threatened, it should have been considered carefully in advance. And management should be committed actually to follow through. If such commitment is lacking, silence is better.

Consistency and Persistence

Throughout the collection process, the debtor should clearly understand, at every stage in the process, that the business intends to get paid in full and now. For this to be credible, the seller, of course, must promptly take whatever steps are necessary to deal with the legitimate problems of the debtor and then immediately press for payment. As Michelle Dunn puts it in the title of her most recent book, Become the Squeaky Wheel.

Matching the Debtor's Behavior

The business intent on collecting its debt must be disciplined and consistent enough to match its own behavior to that of the reluctant client. In many situations of unequal power (large debtor, small company) the business, for instance, will continue work on a contract (a study, a landscaping job) even though a partial payment is long overdue. In situations of this sort, the business must stop working until it has been paid. This is often very painful to do. Similarly, the debtor should be refused any additional product until the matter of payment is settled. The conflict of interest between buyer and seller is here obvious and visible. All buyers would like to get something for nothing. The deep habit of pleasing the customer must sometimes be checked.

Closure

Sometimes a debt cannot be collected short of a lawsuit. And in many cases, the amount may not be large enough to merit litigation. A good collection policy will anticipate such situations and describe, in advance, how closure will be handled. Writing off the debt or turning the account over to a collection agency may be the options; having the debt hanging around maybe a third—but holds little promise of return while simply being there as a reminder of failure.

USING THIRD PARTIES

Outside collection agencies or the services of an attorney are the usual venues for collecting the money without doing it in house. Key considerations in following either of these routes are the amount of the debt and its age. Collection agencies and attorneys generally take a percentage (usually one-third of the total amount) of the debt collected as payment for their services. Even with professional help, however, some debts will inevitably be impossible to collect due to bankruptcy, customers who move without notice ("skip"), or the high expense required to collect them. For more information on securing a professional collection agency, contact the Association of Credit and Collection Professionals, P.O. Box 390106, Minneapolis, MN 55439, (952) 926-6547 or http://www.acainternational.org/.

Whatever combination of collection methods a business eventually chooses, the owner needs to remain aware of the limitations that state and federal laws place on debt collection under the Fair Debt Collection and Practices Act—which governs collections from "natural persons," meaning individuals. For example, it is illegal to make continual phone calls, to use profane or threatening language, to threaten repossession when in fact the article cannot be repossessed, or to threaten to damage a customer's credit report or have their wages garnished. It is also illegal to discuss a customer's collection problem in public. In addition, businesses have to desist with collection efforts if the target declares bankruptcy. Given the thicket of legal issues that surround many aspects of collection, small business owners should consult an attorney before initiating aggressive approaches to collect on delinquent accounts.

ELECTRONIC BILL PRESENTMENT AND PAYMENT

Business analysts expect that in coming years, electronic bill presentment and payment (EBPP) will revolutionize debt collection for large and small businesses alike. In the mid-2000s, electronic bill payment is still under slow development, in part because concerns over Internet security and privacy abound. But most experts believe that electronic bill collection systems will eventually become dominant. According to some EBPP vendors, conversion to such systems could reduce many business's billing costs by 50 to 75 percent once electronic bill payment becomes the norm for companies and individual consumers.

EBPP methodologies are, however, already in use to bill customers. Some businesses post bills on their home page. Others outsource the billing process to a consolidator who maintains its own page for posting electronic billings. Yet others secure the services of vendors who use e-mail to send bills directly to your customers. This method is favored by many; it is characterized by immediacy and convenience for the customer absent in the former options.

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