I Keep Holding On – Michael Dennis, CBF

Keep Holding On

One of the questions that I am frequently asked is this:  When should I place an account for collection?  In my opinion, most creditors hang onto delinquent debts far too long before placing a debtor company for collection.  There are a variety of reasons that this is true, including hope that the debtor will pull out of their downward spiral just in time.  The problem with holding on too long is that the older a past due balance becomes, the less collectable it becomes.  The real problem is that the older the debt becomes, the faster the probability of collecting approaches zero.

There is another factor worth considering as it relates to working seriously delinquent accounts and it relates to the fact that the time spent chasing accounts you have held onto for too long is time and energy and focus that is taken away from collecting from debtors that are both able and willing to pay, but require a gentle nudge from you to release payment.

I think holding onto too long is a mistake that can be easily corrected.  How?  By making a commitment to place accounts for collection when you find that you are no longer making reasonable progress in your collection efforts.  Here are a few examples of scenarios suggesting that it is time to use a third party collection agency:

  • Your customer will not take or return your calls;
  • The account is now 90 days or more past due;
  • The debtor has broken two or more commitments to pay the past due balance;
  • The debtor promised to pay one amount, but paid significantly less;
  • The debtor’s phone is disconnected;
  • The debtor has bounced a check to you but cannot or will not try to make it good.
Michael Dennis, MBA, CBF, LCM

That’s my opinion. What’s yours?

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.

7 Replies to “I Keep Holding On – Michael Dennis, CBF”

  1. I could not disagree. Those examples mentioned are clear signs of debtors without intention or capability to pay.

  2. When I am making the determination to “take a next step”, either small claims, assign to our attorney, or assign to the collection agency, for me it comes down to – Is the customer willing and able to enter into a short term ( 3 months or less) mutually acceptable payment plan to bring the account current or pay for a residual balance on inactive customers? If they are unwilling and/or unable to do that, we immediately take the next step. As you mentioned, time is money in the credit/collections world, and the longer you wait before initiating action, the slimmer your chances of ultimately collecting.

  3. To add to what Brian suggested, we also have a 3 month window of opportunity to work with delinquent debtors. Two things we require in return for a payment plan are (a) a significant down payment of no less than 25% of the total AR balance and (b) a signed promissory note from the debtor agreeing to whatever pay ment schedule is negotiated.

  4. Hello Michael,
    Loved the article. We recently heard of a member who writes off all past due balances instead of sending them to a third party collection agency. Is that common in large businesses? I thought it rather odd since most collection agencies collect on contingencies any way. Your thoughts?

  5. Hi Jodi

    This is certainly a non standard process. I am not sure of the rationale but that would be my first question — WHY do you write off rather than placing for collection.

  6. A very good friend of mine who happens to work for a collection agency offered these comments. I agreed to post them without identifying the agency he represents. He wrote:

    Two reasons to outsource past due receivables.

    1. The third-party influence elevates the collection game.
    – it takes the emotion out of the collection process,
    – it takes “potential” sales out of the collection process,
    – it avoids contested litigation by uncovering disputes.

    2. At some point, Diminishing Returns sets in and it is more cost effective to outsource the collection. These key guidance points apply:
    – Know when you reach the demarcation point (the tipping point) in the collection process where further in-house collection is not economically justified.
    – When you reach that point, it is time to reach out to a third party collection agency

  7. It should become a standard to refer accounts to collection if they meet a certain criteria established by the company. If a company is going to write-off an account, it is wise to refer to third party collection. Goodwill is lost when an account is written-off, then why not take the logical step to allow a third party to collect it.

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