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Avoid Bankruptcy Preference Actions | | September 04, 2008 | The Rules of Acquisition, in the fictional Star Trek universe, is a set of guidelines intended to ensure the profitability of businesses owned by the ultra-capitalist Ferengi.
The first Rule of Acquisition is "Once you have their money, you never give it back."
Think about the satisfaction of finally getting that unsecured, past due debt paid by your slowest paying customer. You would like nothing better than to hold on to that money, but months or years later, WHAM you get an official notice from some Bankruptcy trustee to return that money! Now what?
If your past due debt got paid within 90 days prior to your debtor filing bankruptcy, the law presupposes that you were paid in preference over all other creditors, as if you were privy to some insider dealing. The equity solution is for all of the preference payments to be pulled back into the estate and redistributed. There is seldom any redistribution of any such recovered money to unsecured creditors.
What to do? Your safest bet is to be sure that you always get paid in full and on time, especially by your most credit-risk customers. If you can prove that the payment was not on a past due balance… “you never give it back.”
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More than a loan | | September 04, 2008 |
Are you playing banker for your customers? If you are extending credit to them, that is, if you giving them goods and services in exchange for promises to be paid at a future date – you are playing banker.
This is not a bad situation so long as you calculate the costs of providing those goods and services into your sales cost. You are a good business partner after all and you pay YOUR bills on time, yes? That means you have to pay someone whether you get paid or not.
What if it takes longer for you to get paid than expected? You could wind up having to borrow the money to pay your employees and suppliers; you could lose the interest on the money that you could have otherwise make by investing it; you could lose out on the ability to get discounts for cash or prompt payment on what you buy. Worst of all, the longer it takes you to get paid, the more likely you will never get paid. Bankruptcies don’t happen over night, but you don’t want to be stuck holding an empty sack if your debtors file.
If you keep a tight reign on your accounts receivable and take prompt collection action whenever payments get slow you will usually come out ahead. Pick up the phone; send a collection letter; anything, but don’t just sit by and watch you money lose value.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
Disputes and Discrepancies | | August 15, 2008 |
Are billing disputes and discrepancies building up in your past due column? Are you spending more time collecting small amounts from good customers than you are collecting large balances from troubled customers?
Break out of that Pit of Despair and do something meaningful to avoid them in the first place.
The sad fact is that the source of most disputes and discrepancies start within your own company. As Pogo once said, “We have met the enemy, and the enemy is us.” Errors creep in when you have overly complicated discount sales programs and overly convoluted internal communications between sales, manufacturing, shipping and billing.
The biggest problem for you the Credit Manager is that the solutions usually lie in other departments for which you have no authority to make changes. As Jerry Garcia once said, “Somebody has to do something, and it’s just incredibly pathetic that it has to be us.”
You need to streamline your products and processes to improve quality of not only products and services, but also the quality of the information going on the bill you send out.
One good way to start this process is by enlisting the enthusiasm of all the other managers whose employees touch the customer to work together to make it easier for each other to “get it right the first time.” Everyone understands the need to reduce waste on the shop floor, but few instinctively understand the need to reduce wasted time; yours and your customers.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
The Tao of Debt Collection | | August 15, 2008 |
Be self-assured when you ask for payment. They owe you a debt, not a favor.
Call early and call often. If you don’t seem to care about getting paid, neither will your debtor.
You can be aggressive without being abusive. You can push without getting angry.
Don’t get caught up in a cycle of arguing with your debtor. Let them vent, but get them back on the subject of payment.
Promises are good. Either they pay as agreed, or you know to be more aggressive. How they act on promises tells you much about how to proceed.
Finding out why you are not getting paid requires good listening skills. Listening gets to problem solving.
Work through objections quickly. Deal with legitimate reasons, brush off excuses.
Know when your customer becomes a debtor. You want to keep customers if you can.
Time is not on your side. The longer you put of doing something meaningful to collect your debt, the more likely you will never collect it.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
Credit Fraud | | August 08, 2008 |
Your best chances of getting paid on past due accounts start when you avoid credit fraud in the first place. While credit fraud is relatively rare, half of all business credit frauds give fake references. Check the references in local directories to see if they have a legitimate location and not just a mail drop. If you call a reference and have to leave a message, when you get a call back ask to call them right back and see if you get an answering service again. Look for patterns of references that don’t match the new clients’ story. Are references reporting sales too high or a credit relationship too long for the company you are checking on? Whenever your “gut” tells you that something doesn’t quite add up, dig deeper. If it is a particularly big order on a new sale, don’t hesitate to check the credit of suspicious references. The extra effort will help you avoid losses that no amount of collection effort will help.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
Two questions to ask your self when extending credit: | | July 25, 2008 |
1. What is the likelihood something could go wrong?
The less you know about the Character of the people you are dealing with; the Capacity of the company to operate successfully; their financial Capital; the current economic Conditions and the validity of the Contract, the more likely something could go wrong.
2. What is the worst thing that could happen if something does go wrong?
The bigger the possible impact to you, the more you need to determine the likelihood of something going wrong.
Know and understand the C’s of credit.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
The C's of Credit | | June 22, 2008 |
Q: What is this I hear about the C’s of credit?
A: There are several lists out there that use words beginning with the letter C as a memory device of things to Consider before extending Credit.
Character refers to the willingness of someone to pay you. Look to their previous business background. Find out all you can about the owners or officers of the company. How have they performed in the past? Any bankruptcies? Are they new in town? Do they move around often? What you want to watch out for is fraud.
Capacity is the ability to operate successfully. Look at the skills the people bring to the business. Do they have the marketing, production and finance experience to run the business? Previous business experience is a valid indicator of the capacity of the firm. What you want to watch out for is incompetence.
Capital is necessary for the ability to pay obligations. This is all about financial condition. Review especially their net worth and cash flow. Watch for under-funded or unprofitable firms.
Conditions (of the times) will affect their ability to pay you. Consider general economic conditions that are occurring nationally, regionally or within the industry. Also consider weather and seasonal conditions. Watch out for poor contingency planning.
Contract is an agreement that they will pay you according to terms. Be sure you have necessary written agreements; credit applications; saved correspondence; you’ve properly identified the identity of the debtor as either an individual, partnership, corporation or LLC. Watch out for surprises and possible future misunderstandings.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
3 Step Telephone Collection Process | | May 11, 2008 |
Whole books have been written about the psychology behind the steps you should take in collecting money over the phone. If you simply follow the easy steps below, you will be way ahead of the game.
1. Before you get on the phone, know the current status of the account. Make sure you have reviewed the past record of the account. Be aware of any economic conditions that might affect payment. Plan your strategy before the call.
2. When you make the call, identify who you are talking to then identify yourself and the reason for the call. This is a good point at which to pause. Let them reply first if you can. Discuss the account and come to an agreement.
3. Record the conversation and send a confirming letter if the balance justifies it. Call back on the day payment is due if no payment has been received.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
Can they, will they pay the bill? | | March 03, 2008 | Before making the decision to extend credit to another business you have first determined the legal ownership of that business and have documented that they agree to the terms of the credit sale. Now the final step is to determine if they have both the capacity and the willingness to pay their bills.
Financial statements; balance sheets and profit & loss statements are a good place to start. While the numbers can be manipulated to look better than they are, ask your self “do they make sense?” For the size and age of the business, do the numbers look about right for the industry? Will you be the biggest creditor? Do they have sufficient current assets to cover liabilities as they fall due? Are they profitable and have a solid tangible net worth? Their bank will sometimes verify deposits and length of service.
If the financials look good, check to see if they have a track record of paying their bills on time. It does you little good if they can pay you, but put you off until you file suit. You can check the business reference they give you but a less slanted method is to order a credit report from an NACM affiliate such as PSCredit.com who will not only check references but have a database of reports from other suppliers and public record information.
The better job you do at qualifying business credit customers at the front end, the less you will need to resort to collection services or collection attorneys at the back end to convert your sales into cash.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
Do They Agree to be “On the Hook?” | | February 26, 2008 | When extending credit, the first thing to determine is who is on the hook. Once that is understood, the next step is to make sure they agree to be legally, morally and financially responsible to pay YOU. In days long gone it was OK to do deals on a handshake but in today’s world all it takes is a $1.98 lawyer to get their clients off the hook from their obligations if a loophole can be found. The biggest loophole usually is that there was never a LEGAL agreement to pay in the first place. So it is up to you to establish that agreement before you extend credit.
Get a credit signed credit applications from the corporation or business owner or each partner.
Get a contract or agreement signed by an authorized person from the debtor company that spells out what they agree to do in exchange for the credit you extend.
Save all correspondence, collection letters, orders and purchase orders.
Make detailed record of all phone conversations & collection calls as to who said what to whom and when it was said.
When it comes time to collect your debt, whether through collection calls, collection letters or through a collection agency, you will be more successful when you can prevent your debtor from alleging “I never agreed to that.”
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
Question From Blog Reader | | January 07, 2008 | P. Eliot of Tampa writes: “Postcards seem to be a quick and inexpensive way to collect money. Why aren’t these used more often?”
Answer: If you are using postcards to collect consumer debts, STOP IMMEDIATELY! Not only can the postal workers read about the debt, anyone at the address, related or not, could see this information. Collection laws strictly prohibit most “communications” of consumer debts to a third party. As collection laws evolve, many of the protections for consumers are finding their way into collection of commercial/business debts. While you may be able to get away with it for a while longer, the safest practice is to seal collection letters inside envelopes addressed only to the debtor.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
WHOS ON THE HOOK | | December 20, 2007 | Your sales person may be the only one from your company to have face to face contact with your potential customer before you decide to extend credit. Train them to ask a few simple questions that will not only help you in the credit phase of the transaction, but will also help you greatly if/when you have a problem collecting an unpaid bill.
*What is the name of the owner of the business?
*Does he/she have a partner, and if so what are the names?
*Is the business incorporated or an LLC, if so what is the exact legal name of that entity?
The name printed on the side of the building is seldom that of the legal owner of the business. Small business “owners” will often mistakenly say that they own the business when in fact they have incorporated the business, and the corporate entity is really the legal owner. If you ever have to file suit to collect this distinction will be important. You will not be able to collect from an individual if it turns out that the business was a corporation all along.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
Debtor vs Creditor | | November 29, 2007 | Do you know the difference between the two? These two basic words are sometimes confused by business people who extend credit. So if you currently make this mistake, you are not alone. Here is the clarification:
Creditor: the entity that is owed the money. The party that has provided credit in the form of goods, services or a loan and is owed money.
Debtor: the entity who owes money to another party, the creditor.
These two phrases should never be interchanged if your customer owes you money based on credit you extended to them. So now that you know the difference between creditor and debtor, apply it to your everyday business lingo.
eCollectionLetters service can provide you with a collection letter service to help reduce debt accounts by eliminating the third party intermediary costs of a collection agency. We understand when the customer doesn’t pay your business may suffer. Past due accounts may limit your ability to expand, purchase new equipment and/or supplies, or negatively affect your cash flow. Past due accounts reduce profitability. Save time. Save money. Save effort. With eCollectionLetters, we will help you save all three! Click here to sign up today.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
Good Collections Start with Good Credit | | November 14, 2007 | Debt collection, whether you use collection letters or a collection agency service, your success in getting paid may depend on how good of a job you did before you extended credit. The three questions you have to ask before you extend credit are:
1. Who’s on the hook?
2. Do they agree to be on the hook?
3. Can they, will they pay the bill?
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
Free Sample Collection Letter vs Collection Agency Letter | | November 07, 2007 | You no doubt have tried sending your own collection letters and maybe even some free collection letters found online. Sometimes it’s not how you ask that is as important as who does the asking. A collection letter from the Credit Manager or Company Owner will get more attention than from your company clerk. Similarly, a letter from a collection agency will seem more important than any letter you might send.
eCollectionLetters will get noticed because they are sent out by our collection agency Pacific Southwest Credit Association with national affiliations. We tell your debtors that information about unpaid collection accounts such as theirs is routinely shared with credit reporting agencies. Reports of bad credit history make getting new credit harder, which makes doing business harder. Finally, we tell your debtors that our collection agency is prepared to take whatever legal means necessary to collect any unpaid account balance.
With eCollectionLetters you only pay for what you need. The most it can cost you for a series of three collection letters from our collection agency is $15. Only then should you consider assigning the account balance to our full-service collection agency, and then you only pay a percentage of what is collected, and you don’t pay anything until it is.
| | Please contact Fred if you have a question or comment regarding this blog at Fred@eCollectionLetters.com | | |
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