So… Why Hasn’t He Paid Yet?

By Laura J. Lowenstein, Esq.                                 

For clients unfamiliar with third-party collections or ones that don’t have rolling collection accounts, such as cell phone, utility and credit card companies, the concept that collections is not a silver bullet quick fix seems to take many of them by surprise.  “My account was turned over a month ago, why hasn’t he paid already?”…  while a seemingly innocuous and fair question, the answer is not-so-simple.  Below are just a handful of the reasons why collections is not for the impatient:

Documents.  This point actually applies pre-collections but has an incredible bearing on the success of the collection process.  As I tell all of my clients, a handshake or past good dealings will only lead to problems.  Make sure your deals are well memorialized with credit applications, supply agreements, late payment terms and personal guarantees.  Think of these documents like a pre-nuptial agreement … when you need them, you’ll be ecstatic that you have them.  When business dealings are profitable on both ends, documentation seems an afterthought but my clients who consistently paper their deals appropriately and thoroughly routinely hit collection success rates in excess of 50%.  diceKeep in mind the national average is approximately 15-21% and you understand the importance of a solid agreement.  While the timeframe for payment may have been lengthy and required multiple contacts, negotiations and even possibly legal action, well-documented deals tend to eventually pay.  Which brings me back to the client who sends an invoice and some text messages yet is completely dumbfounded when an account that is neither appropriate for credit reporting or legal action does not immediately pay?  It is all about the documents… we can’t (and won’t) create the illusion of legitimacy if a debt is based on little more than someone’s recollections.

Regulations.  Collections is a highly regulated industry.  No contact sent to a debtor – whether or not an initial one and whether or not a written one – is undertaken without the requisite disclosures or outside of permissible timeframes.  For example, every debtor must be given an initial disclosure that delineates a defined 30-day dispute period and, if a dispute is lodged, validation must be provided before any further contacts can be made.  We actually provide for such validation no matter when a dispute comes in … it is, in my opinion, simply good practice.  Further contacts are defined and telephone calls are intentionally never auto-dialed or randomly made – again, in my opinion, this is simply good compliant practice in view of relevant regulations such as the Telephone Consumer Protection Act – which also prolongs the collection arc.  Credit reporting is also done only after adequate verification and a determination of qualification of the account.  Add to that individualized skip tracing and pre-legal analysis and you see why the timeframe for full-service collections is neither quick nor by happenstance.  Furthermore, once an account goes legal, a suit is subject to the jurisdictional pace of the Court in which suit it brought and any attorney will tell you that this can vary w  i  d  e  l  y.  Patience and faith in the diligence and abilities of your collector is key to a good working and successful receivables partnership.

Multi-Stepped Process.  As touched upon above, the collections arc is a tiered multi-step process.  From account assignment to data input to contacts to skip tracing to demographic verification to credit analysis and reporting to legal action to judgment enforcement, collections is neither simple nor one-dimensional.  As we say around here, despite appearances to the contrary, no two accounts are ever the same.  Remember, if the debtor was an easy payment target he or she would not have been sent to collections in the first place.  But with good paperwork, diligence, substantive collection tools and the option of legal action, collections is often your last best option to get the money you are due.

Lack of Financial Commitment.  So you have tried calls, letters, pleas, promises and probably some not-so-veiled threats and still no money … frustration leads you to google and find a collection agency.  You accept a contingency rate of approximately one-third because, you rationalize, two-thirds of something is better than one-third of nothing but are then surprised to find that you have to pay out money if you want to eventually litigate your case.  While it is true that contingency fee accounts are the most commonly chosen ones, many creditors opting for this fee arrangement want to quickly move to suit feeling that it’s the most aggressive approach.  When not paying hourly rates, clients tend to demand the most exhaustive measures no matter the circumstances and it is the job of the collector to resist artificially rushing the process for no real reason other than a creditor’s impatience.  By doing this, a collector is actually doing a great disservice to his/her creditor-client.  Putting aside the inherent risks that come with any litigation, it is my opinion that suit should only be brought upon recommendation of the collector who has had the account for a minimum of three months and who, based on all of the paperwork, data and information gathered, feels that a lawsuit is the appropriate next step in the collection arc.  Moreover, it is often required throughout the collection industry that a creditor advance all court costs.  I do believe in the theory that a financial investment – even a small one – tends to weed out suit intentions based on harassment as opposed to sensible business acumen.  Collectors should never be in the business of harassment, directly or by proxy, and unfounded impatience of a client-creditor should trigger a red flag and cause a collector to hit pause for reassessment of that account and the motivations that may be hiding behind it.

The collector-client relationship should be one of mutual trust and aligned interests.  While the process does sometimes work fast, in other instances patience is truly a virtue and one of the largest keys to ultimate collection success.

For more information on Capital Resource Management, Inc. and how we help individuals and businesses generate revenue through better financial practices and compliant collections, please contact us at 1-844-277-3277.

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