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Debt Collection
Hi all,
With the economy as tight as it has been this year and new work slow coming in I have been researching the need for personal debt collection services.
The major debt recovery businesses can be impersonal and indeed do damage to possible sales relations (looking at customers who are having difficulty at the moment but in the past have been good payers).
I would love to hear any feedback or ideas on a more personal approach to debt recovery services.
Justine
With the economy as tight as it has been this year and new work slow coming in I have been researching the need for personal debt collection services.
The major debt recovery businesses can be impersonal and indeed do damage to possible sales relations (looking at customers who are having difficulty at the moment but in the past have been good payers).
I would love to hear any feedback or ideas on a more personal approach to debt recovery services.
Justine
Replies to This Discussion
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Permalink Reply by Cabal Investigations on -
We offer debt recovery services but all too often see that our clients have left the debt far too late and the truism that a debt becomes exponentially more difficult to enforce the longer it has been ignored tends to reflect the reality of the situation.
Perhaps I'm a bit jaded and cynical but while I understand that many business will be having problems (if not already), you simply can't allow their problems become your own.
Best advice I can give is hope for the best but prepare for the worst.
1. Make sure that you have signed agreements with your new clients clearly stating your terms of business and more importantly your terms of payment. This includes that all important line that the client is liable for all actual costs incurred in the collection of overdue accounts. Perhaps if you don't have these in place with your current clients you may wish to consider implementing this as well. And do have a provision for credit checks of new clients.
2. Make sure your clients understand your terms. Nothing worse than expecting payment 7 days after invoicing when the client thinks they'll pay 20th of month following (or later).
3. Maintain communication with your clients, particularly if they are late in paying. It's your money, don't feel too shy in ringing them up and asking when they expect to pay you.
4. Don't be afraid of losing your 'potential sales relations' by allowing your client to accumulate more debt with promises of future payment when things improve.
5. Don't be afraid of passing them onto a collections agency. Often the inclusion of a 3rd party is what it will take to recover your debt.
6. Don't wait until their account is 90 days in arrears before doing anything about it
I know this isn't quite the advice you were asking for but it is possible to be firm with clients while still empathising with them.
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Permalink Reply by VBIZNZ Administrator on -
I agree with Paul. I've just spent a year recovering a debt through the disputes tribunal. Even though I got my money Yesterday! Yay!... it doesn't mean anything. If the bill isn't paid within 90 days, it's lost money.
We are really strict now, Paul will be happy to know.... we are also adopting a low-tolerance policy. Whereby we stop work on slow payers accounts. Bad debtors (we still have a couple from old), we are going to continue to pursue them. All too often these bad debtors get away with it and then start up a couple of years later with another service.
In relation to clients that have been good payers but are now struggling - put them onto a smaller plan or something they can afford. If they can't afford the usual service level, they should not be asking for it. In these tricky times, one small business cannot carry the debt of the other.
Anyone want to work on a bad debtors website database with me :) Legally I haven't found a way to do it to get around legislation yet.
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Permalink Reply by Heike Miller on -
I personally wouldn't do this for safety reasons. Additionally, I wouldn't be tough or hard enough to do it and don't want to do. There may be people who have genuine reasons for not being able to pay and I wouldn't want to be part of following up and making someone's life worse.
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Permalink Reply by VBIZNZ Administrator on
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It's something we don't provide as a service either. Although we do provide friendly follow up services for our clients. We just make phone calls, emails and letters. But as for visiting people... I'd leave that to services like Cabal.
Also there is legislation behind this and its a bit of a mine field if just starting out. I try not to add too much to my basket of services that includes legislation.
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Permalink Reply by John Dierckx on -
I would have to add to this discussion that (perhaps because I am an import resident), debt payment and recovery appears to have been an issue ever since I opened shop here. On several occasions, as a matter of principal, I engaged in recovering those bad debts only to find that it had cost me more than the final benefit, especially when you take loss of productive time into consideration.
Instead of having to chase outstanding bills I now adopted a different system which includes an engagement fee/retainer/installments.
I remember clients not being all to happy about it at first but once they get used to it it works out pretty well.
Now of course this would not be a viable alternative for everyone but especially in the service industry this should work.
Has anyone being confronted with this problem regularly considered factoring?
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Permalink Reply by VBIZNZ Administrator on
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I haven't considered factoring as my current debtors are minimal (in saying that my old ones are huge)... anyway... I work with a couple of clients who factor their invoices and it seems quite scary. Not the factoring part, but the accounting part and then ensuring everyone in the work chain understands it.
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Permalink Reply by Cabal Investigations on
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John Dierckx said:
Has anyone being confronted with this problem regularly considered factoring?
I had considered factoring with one of my tricky clients but decided against it as the fees I was liable for should they not pay the factoring company in a timely manner meant that I was losing even more.
I think factoring may be a worthwhile idea in some select cases, but you still are at the mercy of your debtor.
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Permalink Reply by VBIZNZ Administrator on
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Does anyone know of any companies that factoring works for? I do have one and while it's a bit of a mission with retentions etc, I believe it works well for them. They are a $3m+ company though.
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Permalink Reply by Shaun Ross on -
So, what sort of threshold would make it worthwhile to hand unpaid invoices over to a debt collector? I've only ever had one client not pay, and it was only for a few hundred so I figured after the fees etc, it's probably not worth continuing with and just forgot about it. Another business owner mentioned that if it's under $5000 then it's not worth pursuing in the end - if it goes to claims court then most of it you'll lose to law fees...
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Permalink Reply by Cabal Investigations on
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Shaun Ross said:So, what sort of threshold would make it worthwhile to hand unpaid invoices over to a debt collector? I've only ever had one client not pay, and it was only for a few hundred so I figured after the fees etc, it's probably not worth continuing with and just forgot about it. Another business owner mentioned that if it's under $5000 then it's not worth pursuing in the end - if it goes to claims court then most of it you'll lose to law fees...
To answer your last question first, if it goes to the Disputes Tribunal (used to be the Small Claims Court) it only costs you the filing fee which depends on size of claim. At most, it will cost $100.00 (for claims between $5000-$12,000). Lawyers are not entitled to attend. Additional costs may occur for enforcement of an Order.
As for costs when handing the debt to a collections agency, you should have something in your terms of business clearly stipulating that all costs incurred in collection are recoverable. This equally applies to legal costs, should that need to be the case.
Some collections agencies will charge you either a flat percentage of any monies recovered - Baycorp start at $25% plus GST, but may reduce that depending on volume of work they get from a client - others less. We usually charge a flat 20% (inc GST) on commission-based debt recovery.
However, some agencies may offer you a 0% commission rate but you have to pay a filing fee to cover the initial work, then continue to pay extra should further follow-up work be necessary. While the creditor has to initially pay money for the debt to be pursued, this is added to the debt and entirely recoverable (as long as their terms have allowed for this). It is a cheaper, in the long run, option and one that we prefer to work with.
As for when should someone hand over the debt to a collections agency, sometimes all it takes to get the money is the introduction of a 3rd party.
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