Several years ago, a very good friend of mine – let’s call him Roy – accepted an early retirement package. He decided that he was too young to retire so he started a commercial collection agency in Florida. Naturally, he called his friends to tell them about this new chapter in his life and to solicit business from them. Once he agreed to meet the contingent collection rates offered by the collection agency we used, I agreed to submit a couple of accounts to him. Flash forward a month. I was on the phone with Roy. I asked about the status of the accounts I had placed for collection. He provided a very candid response along these lines:
“Michael, both the accounts you sent me were Dead on Arrival. They were dogs with fleas. Both of the companies were out of business with phones disconnected. One debtor has disappeared completely. The other tossed the keys to their bank and walked away, so there is no meat left on that bone for anyone.”
Roy told me that the biggest problem he had with account placements was that most trade creditors, including me, waited too long to place accounts for collection. As a result, there was little chance for the collection agency to be successful. I did not take offense because: (1) Roy was and is a good friend, and (2) what he said made sense. Unlike fine wine, bad debts don’t get better with age. Therefore, the challenge is to make certain that we assign problem accounts sooner rather than later.
When do you place your at-risk debtors with a third party for collection? In my opinion, you should seriously consider doing so when the following conditions exist alone, or in combination:
- A customer has bounced checks to you or other vendors;
- The customer refuses to replace the bounced check;
- The creditor is no longer making progress toward clearing the unpaid balance;
- If the customer will not take your calls;
- The customer will not return your calls;
The rest of the checklist can be found at this URL: http://encyclopediaofcredit.com/When-to-Place-an-Account-for-Collection
Michael Dennis’ Covering Credit Commentary. Michael’s website is www.coveringcredit.com.
The opinions presented are those of the author. The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors. Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.