Posts Tagged accounts receivable
A Primer On First Party Collections
Posted by David P. Montana in Currency & Finance on August 8th, 2009
Any business owner or manager who has ever made a collections call has done first party collections, whether they realize it or not. First party collections means collecting on your own accounts, so any request for payment by phone, letter or in person qualifies as first party collections.
You’re considered the “first party” because you were involved in the original transaction, while the debtor is known as the “second party.” A “third party” doesn’t enter into it unless you hire a separate debt collection agency.
Third party collections are different from first party collections in a few ways. For one thing, there’s a lag in time from when a bill becomes past due to when a third party collector starts collecting, simply due to the exchange of files. Another difference is that third party collectors don’t have a personal relationship with the debtors, so they may not be cognizant of the need to remain on pleasant terms with them in the hopes of getting future business.
Often the debtor will be more inclined to try to please their original creditor, especially if you have a product or service that he or she needs in order to maintain their business. Sometimes a gentle reminder that you won’t ship any more items until their past due amount is cleared up is enough to get recalcitrant debtors to pay.
Another difference is that unlike third party agencies, first party collections do not fall under the Fair Debt Collection Practices Act. When you are the original party or a legal affiliate of it like a subsidiary, you are considered a lender rather than a collector. Third party agencies therefore do not have as much wiggle room in their practices as first party collections entities due, but the latter are still subject to state and federal law.
The rule of thumb for first party collections no matter what the industry is to keep trying to collect for 2-3 months. When you reach that milestone and haven’t yet collected, it’s typically a good idea to engage an outside agency or sell the debt, which means someone pays you up front for the right to collect on the debts.
In addition, first party collections aren’t very effective unless you have a specialized collections staff. Your sales force, accounting staff or management are not trained collections people and their time is better spent elsewhere while you save collections endeavors for people who know how to perform them.
First party collections done by a dedicated staff is just a more efficient way of handling it. They can take continuing education on collections techniques and perform more collections tasks such as finding people using private investigation, working out creative payment arrangements or disguising collections as audits. First party collections that are operated like third party collections agencies are the most successful.
Facts To Consider When Choosing A Collection Agency
Posted by David P. Montana in Currency & Finance on July 31st, 2009
Once you’ve decided on delegating your delinquent accounts to a collection agency, the next question is how to find the best one. In today’s current economy there are so many different kinds it can be confusing. Following are suggestions for finding the best collection agency to suit your needs.
Collection agencies use two kinds of fee structures. Some of them send you a bill each month, while others take their money out of the funds they recover for you. The latter is clearly preferable, because it doesn’t cost you money upfront and it shows you that they have confidence in their ability to collect. There’s really no reason to pay fees up front to a collection agency when so many of them don’t require it.
Some agencies belong to professional collection associations, while others do not. There are two such groups in the US, the Commercial Law League of America and the American Collectors Association. It’s preferable to hire a member firm for collections because they take their professional standing seriously.
For example, both organizations require perfectly professional conduct from their members. Not only do they conform to the Fair Debt Collection Practices Act, they are committed to training courses for members to teach the latest collection techniques.
You also want to pick a collection agency that will let you view your accounts online. Though you’re delegating the task to them, you need to be able to keep an eye on things for your peace of mind. An agency that allows you online access to your accounts is preferable to one that does periodic reporting in the mail.
Another thing to ask when you’re interviewing collection agencies is whether or not they make use of private investigation firms or software. Sometimes the hardest part of the collections process is locating the client. It’s absolutely imperative to pick a collections firm that will go the extra mile and hunt the debtor down if the current phone number and address you have for them isn’t working.
Agencies that incorporate private investigative services into their offerings are also preferable. One of the most difficult parts of the collections job is tracking down missing debtors. An agency that incorporates investigations into the services they offer you will cost less and be more efficient than one who has to outsource their investigations or one who doesn’t do investigations at all.
Finally, make sure your collection agency has staff working outside of standard business hours in order to maximize your collections efforts. If you have collections all over the country it’s better to hire an agency with offices nationwide in order to deal with disparate time zones. Even if all of your collections are local, make sure the collection agency has some people who work early and some who work late, because collections calls outside of the 9-5 time frame are usually more successful.
Why Businesses Need National Collection Agencies
Posted by David P. Montana in Currency & Finance on July 25th, 2009
When you’re trying to pick collection consultants to handle debtors for your business, you should seek out national collection agencies. In virtually every instance, national collection agencies just have more to offer for you.
For a collection company to have offices nationwide, they have to have a lot of resources. You may not think that matters when it comes to someone making collection calls for you, but it matters a lot. For example, more than half of the states in the US require collection agencies to be licensed. This process costs time and money.
Using a local collection agency to call people across the country is not a wise decision. Someone in Massachusetts is not likely to be aware of the legal requirements in Oregon. Using a firm that has offices in every state will ensure that your collection people abide by that states’ laws, which is important for your reputation.
National collection agencies also have the money and resources to train their collectors in the latest, most up-to-date collection techniques. Besides repetitive phone calls and demand letters, there are creative solutions to debt collection these days and you want to put your receivables in the hands of someone who will use every weapon at his or her disposal.
Because they are more prestigious, national agencies get the cream of the crop when it comes to collection employees. They are also more likely to impress debtors into paying something. They will realize you mean business when you have a national debt collection firm representing you.
National collection agencies make the effort to hire specialists within each industry as well. Whether it’s medical collections, bank collections or consumer collections, each industry has its own unique concerns and you need a collection agency that will have multiple people skilled in your business’s area.
Another important advantage to nationwide collection agencies is simply time. With more people on their payroll, they’re able to work on collections for more hours in the day. In addition, having a local office in each state eliminates problems with time zones. If you are in California and use a local agency, you will miss out on the best time of day for collections activities for clients on the East Coast.
Finally, national collection agencies, because their offices need to communicate with each other, tend to be more systematic. Their accounts are usually computerized and they often give you online access to your files, so you can keep an eye on what’s going on at all times. You may have handed over your receivables to a collection firm so that you didn’t have to worry about it, but the truth is that you need to monitor their activities periodically in order to make sure things are going well. National collection agencies offer the ability to do just that.
Some Important Reasons Your Business Should Consider International Collection Agencies
Posted by David P. Montana in Currency & Finance on July 21st, 2009
With a global economy in place it’s very likely that some of your clients are located in foreign countries, which means that some of your collections are also located in foreign countries. Selecting international collection agencies is crucial to your business success if you have a lot of overseas clients and need to perform international debt collection. But how do you pick the right agencies?
First, what is the percentage of your receivables that come from other countries? If you have one or two clients on other continents that are slow payers, it may not worth the time and effort to hire an international firm just for them. However, if a significant portion of your receivables come from other countries, it very well may be.
International debt collectors that you hire represent you, and can make a big difference in your reputation in certain markets. It’s absolutely imperative to hire one that fits in with local business practices. Professional but firm is the sweet spot; debt collectors need to avoid upsetting your clients while still remaining effective, and understanding local customs is an important part of that.
In addition, hiring a local collection firm will show your clients that you’re truly committed to recovering debt. It’s a lot easier to ignore a phone call from another country than it is to ignore phone calls from international collection agencies, especially if the callers are local attorneys.
Some international collections companies may have offices scattered throughout the world, while others may specialize in one location, so you may need to hire more than one to cover all the areas you service. This is not a problem, as it’s common practice to spread collections out amongst several agencies anyway to enhance the chances of recovery.
Some internationally minded law firms these days hire attorneys who are admitted in more than one country, but it’s more common to use local affiliates. Either way, you need to make sure the attorneys your international debt collection agencies are using are actually admitted to the bar in the countries you’re collecting in.
If your business is spread out among many different regions, and you think it’s too much of a bother to hire several different international collection agencies, keep in mind that most debt recovery agencies do not charge unless they successfully recover money. For this reason, you can hire several of them, say one for Europe, one for Latin America, and one for Asia, and only pay fees if and when they recover money. Since in-house collections people are not very likely to be successful with international debt collection, it’s worthwhile to do this even if it means hiring more than one firm.
The final thing you need to know about international collection agencies is how they handle fees. Most collection agencies will accept a part of the return as their fee, so there’s no reason to pay up front. However, you still need to check out the currency issues. Do they take their fees in dollars or local currency? Do they recover the money in dollars or local currency? If they recover in local currency but pay you (and take their fees) in dollars, how and when do they calculate the exchange rate? If you use international collection agencies that have offices in other countries, this is less of a problem but it’s still worthwhile to ask them these questions.
Recent Comments