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Collection Agency Secrets for Collecting on Bad Debt
Getting worried that one of your clients, customers or
patients will never pay? Have you given up on a customer who's
essentially said he won't pay? Congratulations--being stiffed by
a customer or patient is a milestone in the growth of a business
or medical practice. But even the most hopeless of bad debts can
sometimes be collected-collection agencies have been doing it for
years. Here are six of their secrets.
1) Don't just call, write.
According to a leading collection agency, you're much more likely
to collect on bad debts when you send a series of collection
letters. Deep down, you probably know why collection letters are
better. It's the same reasons that would make you uncomfortable
placing such a call in the first place: 1) if a debtor knows why
you are calling they will avoid your calls; and 2) if you do get
them on the phone they will most likely have a bad attitude, or
just make excuses like 'the check is in the mail' to get you off
their back.
2) Don't ask if, ask when.
This leading also recommends that you try to get your debtor to
set a date for paying you back. The people who owe you money may
have been saying to themselves that they will get around to
paying you any day now. But tomorrow never comes, which is why
you need a specific date. When you call, start by asking to be
paid today, then negotiate from there.
3) Be nice.
Courtesy is important because: 1) it lets you keep the moral high
ground; 2) it makes it likelier that you can establish a
cooperative relationship with the debtor for getting the debt
repaid; and 3) there are very strong laws against harassment in
the collections process and you do not want even to approach
their limits.
4) Be cooperative
Remember: you and your debtor have one thing in common: you both
want this debt to go away. In particular, you both want you to
stop having to make all these calls and send all these letters.
With that shared goal you and your debtor can work together to
create a repayment plan. While a repayment plan may not be what
you had hoped, it's better than holding onto a bad debt.
5) Know the value of your time
The one thing that is probably keeping you from collecting on
your supposedly bad debt is your fear that the time you spend
collecting the debt may not be worth whatever you will recover.
This fear is justified; your time is valuable and maybe it would
be better spent on getting new business.
But don't just let this fear linger in the back of your mind,
fighting with the little voice that says you want your money. To
get a rough idea of how much time you can afford to spend
collecting the debt, and whether you have the time to do it at
all, sit down and write out a rough estimate of the value of your
time, the likelihood of collecting, and the amount you are
owed.
For instance, let's say you are going to assign this task to
an administrative assistant whose time is worth $15/hour. The
debt is $1000. It is owed you by an old customer who is three
months behind but has never been seriously delinquent before, so
you say you have a 50% chance of getting the money, making the
value of the collection about $500.
You divide $500 by $15 and find that your assistant could
spend 33 hours collecting the debt before it lost your company
money. However, you'd probably still feel a little unsure about
whether it was all worth it. Your feelings would be correct:
there's still the opportunity cost of all the work your assistant
won't be doing to keep your business moving. To be safe, you can
also estimate the opportunity cost at another $15/hour, which
means you can only really afford to have your assistant spend
half as much time, or 16 and a half hours. If you've already
spent that much time already, it's time either to call it quits
or call in the professionals.
6) Get a collection agency
The one secret the collection agencies know about collections is
the value their services deliver clients. Unfortunately,
businesses do not usually agree to write testimonials for their
collection agencies or even recommend them to a friend. If you
didn't know that there are small business collection agencies
that will collect your bad debt for under $20, you have to admit
that leaving your collections to the pros is a pretty good
business secret. In short, you don't want your bad debt to cost
you twice: once when you lose it, and again when you waste a lot
of your or your people's time going after it. Going with a
collection agency can help you avoid either outcome.
Steve Austin is a regular contributor to Let No Debt Remain
Outstanding (http://www.let-no-debt-remain-outstanding.com/),
a website with articles on choosing a collection
agency, along with recommended the best collection
agencies.
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