A recent article on Forbes.com encouraged parents to talk with their kids about credit, not just dollars and cents, when they’re young. In the article, Stephanie Eidelman, the president and publisher of insideARM.com, shared her own experience of discussing financial issues with her children.

In Forget Cash – Teach Kids About Credit as Early as 6 or 7 Years Old, Eidelman writes:

My second graders are learning about cash. Okay, you’ve got to start somewhere. But cash isn’t what gets us into trouble. It’s credit. And that’s what so many of us use every day. My kids see me using credit all the time. They don’t often see me paying bills. And now that I pay most bills online, there isn’t much difference between what it looks like for mommy to pay bills and what it looks like for mommy to answer email, or be on Facebook.

According to John Owen, Director of Client Development, at DECA Financial Services, LLC, “This lesson is an important one for both parents and children. While conversations about money are often the foundation of teaching kids basic skills like counting, it’s a good idea to start talking about money in various forms–including credit–from an early age. Simple financial literacy concepts can be included in this kind of early education and will one day be as important to kids as tying their shoes or memorizing state capitals.”

To read the full article on Forbes, click here.

Although DECA Financial Services, LLC focuses on several industries for debt collection, a healthcare article written this year on InsideArm.com, caught our attention.

Many industries have utilized a “scoring” methodology to determine the propensity for their debt consumers to satisfy their debt obligation, yet healthcare is a recent adopter.  According to this healthcare credit scoring article from  insideARM.com, the healthcare industry has selected a patients credit score as the tool in determining the ability to pay ones healthcare debt.  We truly feel that having a scoring method is better than not, but, like the article, believe there are more “telling” statistics, especially in this economy.

Read the article on insideARM.com »

DECA Financial Services has recently engaged with insideARM.com and Kaulkin Media’s Creative Services team to optimize its website for search. This is part of a larger effort to promote the DECA brand name and also develop an online platform that is optimized for delivering news and updates to visitors of the DECA website.

Read the full release here: DECA Financial Services, Indiana ARM Firm, Reboots Website

How effective are your debt collection efforts today? If you should find yourself without an immediate response to such an essential question then the answer is already quite obvious, at least to us. Let us assume that you have not taken a truly objective audit of your collection strategies, but you have set into place what you consider to be a sufficient practice.

Where would you begin in evaluating your collection efficiency and what key performance measures would you use to analyze your success? In this article, we are going to explore a variety of different ways to approach an introspective analysis of your debt collection efficiency.

The basics of A/R efficiency insights: fundamental financial and accounting analysis

Fundamental financial analysis using simple calculations and ratios can shed incredible amounts of light on whether your debt collection strategies are fully maximized. Basic formulas like adjusted collection ratios, average collection periods, asset turnover, days sales outstanding and a few others can provide accurate indications not only to the viability of your collection efforts, but for the company’s position as a whole

Average Collection Period = Total Accounts Receivable / (Annual Credit Sales / 365 Days)

The Average Collection Period will tell you the average time it takes you to collect debts. Take an ACP snapshot for each of your company’s last six months and look at the trend. Is the ratio increasing or decreasing? Preferably your ratio is decreasing, indicating that the time it takes to collect your outstanding debt is reducing.

To calculate ACP, divide your total annual credit sales (up to that point or take an average from past years) and divide that by 365. Then take your total accounts receivable balance (for the period or point in time you are analyzing) and divide it by your initial answer. The result is the average amount of time in days it takes to collect your debts.

Days Sales Outstanding = Total Accounts Receivable / (Annual Sales / 365 Days)

In the ACP formula, you’re dividing just your annual credit sales (excluding cash sales) by 365, while in the DSO formula you’re plugging in your total annual sales including cash transactions. Again, the result is the amount of time on average it takes for your company to collect a debt, so a low ratio is optimal. The difference is that the DSO takes a broader approach to how well you’re managing your AR.

Receivables Turnover Ratio = Net Credit Sales / Average Net Receivables

In the ACP formula, you are dividing just your annual credit sales (excluding cash sales) by 365, while in the DSO formula you are plugging in your total annual sales including cash transactions. Again, the result is the amount of time on average it takes for your company to collect a debt, so a low ratio is optimal. The difference is that the DSO takes a broader approach to how well you are managing your A/R.

Receivables Turnover Ratio = Net Credit Sales / Average Net Receivables

With the RTR, you are no longer trying to determine how long it takes for your company to collect on its outstanding accounts, but how often you collect. A high RTR ratio indicates that your company is efficient at collecting receivables often or that you do not typically extend significant accounts on credit relative to your cash business.

Using technology and software to take an in-depth perspective on A/R efficiency

In a recent post on our blog, we gave our readers an introduction into using analytics, technology, software, and web-based programs or applications to predictively model your ARM data and prioritize accounts that are highly collectable from those that are not. If used correctly, the result of implementing this technology-based analytical approach to ARM should not only provide a leaner collection operation for your business, but provide you with some insight into consumer behaviors and patterns.

These products are offered by dozens of developers, including some bigger-name players like Experian. By using visuals, statistical comparison, and principle-based financial modeling, these programs can help you discover and implement improvements for aging customers who share similarities in average collection periods and therefore improve overall cash flow.

Some even come with advance skip-tracing features to help you find relocated debtors, offer comprehensive, automated debt-management systems, and service all kinds of businesses from mortgage originators to medical billing specialists.

While the merits of these outside providers are commendable, we want to take a moment to note that these are the same systems and services DECA Financial Services uses in-house that have contributed to our success as third-party collectors. We want to encourage you to consider outsourcing your troubled A/R to our professional, highly-qualified and results-driven firm.

Champion-challenger testing of collection innovations

The champion-challenger test is a theory that the most efficient way to explore new ways to implement better credit and collection policies within your company is by pitting your existing strategy simultaneously against a new proposed strategy. For an in-depth article on the champion-challenger theory and practical applications, take a look at this article dedicated to the subject.

The champion-challenger test should be considered in your strategy to evaluate and improve your company’s collection efficiency. Construct your new proposed collection strategy using these six steps:

• Determine your test pool or target subjects.
• Review the existing (champion) collection strategy and isolate weaknesses that will be addressed.
• Design the new (challenger) collection strategy and document the expected results.
• Launch the champion/challenger test in a controlled environment and manner.
• Monitor the results and compare metrics to both systems.
• Analyze the results and if appropriate, begin adoption of challenger strategy.

Using this guide, you can begin to analyze and define with great accuracy how efficient your company is at collecting current, future and outstanding A/R. Take a mathematical approach to your actual books and create different scenarios of where your company is in terms of how you handle ARM and where you want to be. Perhaps consider using technology to aid you in your efforts and test-drive your new ideas and systems to improve your ARM.

Workplace apathy is one of the biggest hidden costs of doing business. Because of the manager’s lack in sufficient control over their corporate environment, apathy often flourishes without direct notice, creating an enormous barrier of change for companies who want to maximize the performance of their employees.
In this article, we are going to step away from our typical subject matter that often involves debt collection information and tips, and step into a broader subject – identifying and displacing organizational apathy in an effort to restructure the corporate culture to eliminate the barriers of change and encourage morale.

Organizational apathy defined

We will start by defining organization apathy as a workplace attitude characterized by employees experiencing motivations for indifference or boredom with their roles and responsibilities. By that broad circumstantial description, organizational apathy can exist in any organization, including non-profits and municipalities, and for-profit businesses of any size, scale, industry, or trade.

It is a harrowing issue that daunts even the most experienced and respected managers of our time, and further, organizational apathy rears its ugly head in many different ways. Researchers have suggested that as much as 40% of all workers, from executives to front line employees, experience a slump in productivity during the afternoon, although many other examples exist. Organizational apathy has been widely recognized as a multi-billion annual dollar cost for American businesses.

The potential causes of employee apathy are so wide-ranging that hammering down the source becomes a series of sophisticated, analyzed guesses that may or may not demonstrate any long-term signs of success. Organizational apathy can be attributed to anything from undesirable workplace settings (think of workers being forced to operate in a cold, secluded cubicle) to employees having little or no responsibility in even the smallest divisional decisions.
Organizational apathy also unfortunately leads to a loss of entrepreneurship and thus further impedes the progress of an organization. A vendor with a fresh, new idea may have the solution that will improve results for your organization, but because the culture at an organization may be one of fear of change, progress is impeded.

Overcoming barriers of change in organizational apathy

Let us assume that you are a manager or business owner that suspects your sales team of eight employees is often bored during the regular Monday morning meetings you hold. If this example does not adequately represent you try your best to apply these principles to your own situation.
Instead of conducting your typical Monday meeting, pick a date in the near future (1-2 weeks out) that you can dedicate the entire time to discussing the causes of your employees apathy. Let the workers know in advanced of your plans days beforehand so that they can begin to think about what they want to talk about in the meeting. Perhaps you can include a questionnaire or a notecard listing several of your concerns and areas for notes your employees can use to organize their thoughts.

Be direct in the meeting, but compassionate. Remember – organizational apathy is most likely attributable to some anomaly within the organization itself (perhaps the policies, workplace conditions, environment, etc.) that is likely out of the control of the employee, so you need to respect their concerns.
Even some of your toughest critics will soften up during this informal, open discussion on how employee morale and engagement can be improved as long as you are being perceived as genuinely trying to make a change. Show loyalty to the employees and the courage to make changes on their behalf, even if it means admitting that perhaps the company or its policies are wrong or in need of revision.

Measuring the results of your efforts

The possibility always exists that you may never be able to help all of your employees, and that further, some of you employees may in fact just be lazy and neglectful in their roles and responsibilities, or simply are not hard workers, period. But for those that you can get through to, in your work on eliminating those barriers to change, you will be measuring the outcomes and qualifying your successes.

Here’s how:

• After hearing your employees concerns and instilling applicable changes where necessary, it will probably be immediately clear what positive changes are reflected in the employee’s workplace attitude and conduct. Perhaps by the next week’s meeting, it’s already clear they are more engaged in the discussions and meetings.
• Begin working on allowing employees more creativity and flexibility in their jobs. Over management is burdensome and stressful for workers and the perceptions of trust and self-value that come along with independence will be tremendously appreciated by the employees.
• Proposing activities and projects that are in line with the divisional goals that allow employees near complete control over budget, planning, and execution and holding them accountable for the results is another great engagement and trust builder.
• Encourage social functions and interactions outside of the organization as a reward for a job or project finished particularly well.
• Recognizing employee or workplace and organizational apathy is only the first challenge in eliminating waste in your company. Remember that while businesses face a myriad of obstacles these days that include working in a globally competitive environment and a weak US economy, many of your company’s challenges are at least in some indirect way attributable to unsympathetic or indifferent employees, and left unchecked, apathy can lead to costly mistakes, decreased productivity, and lost business from customers.
• Remember – be engaging with your employees, be compassionate, open and honest in your discussions with them about organizational apathy. Make the suitable changes necessary to the workplace environment= and this could just be the answers to your organization and employee apathy.

Photo attribute: Write for HR

Big vs. Small Debt Collectors - like David and Goliath

So, your small business has decided to hire a third-party debt collection agency to wind down your outstanding accounts receivable, but you are not sure who to use. There are many debt collectors out there that are ready, willing, and able to take on your business, but your goal is to align yourself with a collector who can deliver measurable results.

Now, if you are not sure whether or not you even need a debt collector, or to learn more about when the best time to hire a collector is, this article could help you decide if collection is right for you.

Like any other industry, the debt collection industry is saturated with hundreds of different service providers available for your company to choose from. Some debt collection companies are small, mom-and-pop operations that serve a specific geographical area or industry, while others are large, 100+ staffed firms with hundreds of thousands of accounts at any given time.

Big vs. Small Debt Collection Agencies

When deciding which collection agency you want to use to help manage your A/R, the size of the agency should always be considered. There are advantages and disadvantages to using both a small and large firm, but there is also no black and white, across-the-board answer.

Big agencies offer scalability that small agencies simply could not handle. Bigger firms have the capacity to track and reach the consumer more effectively and they often are able to operate in multiple states. Under the Fair Debt Collection Practices Act (FDCPA), collectors must hold a license in order to collect in a particular state other than the one they primarily operate in and larger collection organizations have the budget to cut through the red tape.

Of course, with bigger firms comes complexity. Agencies with hundreds of collectors on staff are bound to cross FDCPA boundaries and rules and are therefore more susceptible to lawsuits (and in at least a few cases, class action lawsuits).

Smaller collection companies, on the other hand, have much more unilateral control over how their collector’s operate, as well as the organization’s policies, the corporate culture, and employee attitudes. Often, small businesses do not have thousands – maybe only hundreds, or perhaps just dozens – of accounts receivable in default. A small collection firm will probably be more willing to take on smaller accounts then larger firms.

We at DECA believe that customer service and availability is the primary contributors of a company’s success, and if you have ever had a question about an obscure charge on your cable bill, you know that big companies often scrimp on their CSM. But for most small companies, consistently poor customer service will eventually sink the business.

Small businesses, defined as a company with less than 500 employees, represent more than 80% of America’s companies. If the average small business generates just $1 million a year in revenues and a typical allowance of 2% is presumably set aside for unpaid receivables, that means a company that’s considering outsourcing their ARM will probably only have accounts values at around $20,000. Big collection firms can not profit on such smaller account size, but small firms can.

Besides the flexibility of a small collection firm, another advantage is efficiency. Many times, small firms will specialize in collection of accounts that are industry specific, offering you an unparalleled experience and expertise that allows for quicker collection times. For a small retail business, would it not it make more sense to hire a small collection firm that specializes in retail over a big collection firm that specializes in nothing?

The similarities of a big collection firm vs. a small collection firm

In many ways, size does not matter at all. More important than the size would be results. When shopping for a debt collector, you will always want to ask for the firm’s success rates. You can request these materials from DECA Financial Services by clicking here.

And of course, regardless of the size of a firm, all collectors must comply with federal rules and regulations laid out in the FDCPA. Ensure that the collection agency you have considered hiring is compliance oriented in their collection practices. In addition, it would not hurt to inquire to what extent the collector is insured against potential FDCPA-related lawsuits that could arise in the future.

Hiring the right collection firm for your business to manage your aging A/R can be quite challenging. With so many collectors available, you will need to take your time choosing. You can start by considering whether you will want to hire a large collection firm or a small collection firm, by comparing and contrasting the advantages of both in the decision making process. If your company has a small list of defaulted accounts, a smaller firm that specializes in your industry is much more likely to yield satisfactory results.

Picture attribute: BDF Realty Inc. blog

Did you know enrolling your aging A/R accounts into a third-party debt collector’s early out program can significantly increase your company’s chances for a successful collection recovery without eroding your relationship with the consumer? Early-out programs are just one example of many emerging trends that are sure to re-shape the debt collection industry when fully realized.

In this discussion, we are going to present three emerging trends in our industry that have relevance and impact on how you manage your small business accounts receivable management (ARM), the collector/consumer relationship, and the far-reaching capabilities of consumer protection regulation.

Early-Out

“Early-out” is essentially a loose definition for a program debt collection agencies like DECA Financial Services offer which are designed specifically to collect on recently-delinquent accounts. Small businesses can use an early out program to collect debts from consumers that are usually somewhere between 30-90 days old and therefore have a substantially greater chance of a successful collection.

Most early-out programs operate under the premise of first party collections, in which an agency acts and processes the debt in the name of the client, not on behalf of. This allows for continuity of the debtor during the first billing cycle and handoff to your outsource collection partner.

In addition to a considerably higher probability of full collection, early out programs offer another benefit: decreased consumer attrition. Many times, consumers whose delinquent accounts have been forwarded onto a third-party collector, will likely demonstrate some degree of offence. By entering an account into an early out program, you are sending a very strong message to your consumer that says you need this account to be paid as soon as possible, but the relationship you have for so long enjoyed together does not have to be interrupted.

Finally, an early out service can help your company focus less on debt collection and more on running your business, thus increasing the potential for repayment. In addition, quality firms can provide solid regression identifying trends with your A/R that may assist you in decreasing your delinquency and defaults.

Increased protection over consumer communications

Provisions in the FDCPA, the legislation first introduced in 1978 to protect the rights of debtors today bears more requirements and regulatory red-tape when it comes to contacting consumers than ever before. It is just as important for your company to understand these provisions when collecting past due accounts in house as it is for DECA and other professional third-party collectors to understand.

But another government regulatory body, the Federal Communications Commission (FCC), has as recently as 2008 provided an interpretation of the language in the Telephone Consumer Protection Act (TCPA), a body of legislation passed by Congress in 1991, but has been challenged on at least one front in a Federal District court. The language was ambiguous enough that it allowed debt collection agencies to use automatic pre-recorded debt collection calls to the cell phones of indebted consumers for some time.

Technically, the argument that served as the basis for a California District Court ruling that overturned the TCPA had to do with the express written consent (or lack thereof) from a consumer. Express consent is any agreement, in writing or orally, that waives certain protections for consumers when it comes to debt collection communications. Express written consent, however, is much more challenging to obtain from the consumer.

By writing her cell phone number down on a credit application, the plaintiff in the aforementioned U.S. federal court case who was an indebted woman had in the defendant’s argument granted express written consent to be contacted by telephone. The defendant, a debt collection company in Northern California, had added her to an auto-dial machine list that called her several times. She sued and won an undisclosed judgment on the notion that although she may have granted express written consent for contact via cell phone, consent to use an automated machine was not warranted.

By explicitly requesting in your documentation with your customer’s, consent to reach your debtors via email, phone, cell phone, etc., you have now taken a necessary step in ensuring your collection efforts have been approved by your customer. This also allows a collection agency a greater chance of reaching your debtors, thus potentially increasing your returns.

So the lesson we should all take away is to understand the law and understand your jurisdiction when attempting to collect a debt. One of the many benefits of outsourcing your accounts receivable management and collection efforts is that you do not have to concern yourself with federal compliance – that is our job as your third-party collector in pursuit of a settlement from a consumer.

Modernizing the FDCPA

In keeping the regulatory issue theme, the third trend we are presenting is the Association for Collection and Credit Professional’s (A.K.A. ACA International) report released April 6th, 2011 that outlines the organization’s suggestions for updating and modernizing the FDCPA.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the Consumer Financial Protection Bureau (CFPB), whom in plain terms is a new federal agency that is tasked with providing information and resources to consumers relating to their relationship with financial firms and products. Sounds like a big designation? It is.

The ACA announced that among its most important priorities this year is to collaborate and negotiate suggestions for modernizing the FDCPA, an influential piece of legislation that now falls under the CFPB’s authority and currently stands devoid of revision since 2007. The report calls for the attention of regulators to take a look at:

• Language in the bill that addresses and reflects the technological advancements in communications and the rights of both consumer and debt collectors, including but not limited to cell phones, text messaging, email, and social media as a vehicle for collection;
• Clarification on what a collector can and cannot say when leaving a message with a consumer’s answering machine;
• Provide adequate and uniform access of consumer information to debt collectors to ensure timely and the least invasive collection of debt by requiring creditors to keep consumer information accurate and updated;
• And allow debt collectors to fully participate in the dispute process over the validity of a debt so that an appropriate resolution can be achieved quickly.

Of course, this article by no means sums up fully or even partially all of the trends that are emerging in the debt collection industry, but it is a good reference for some of the more persuasive and influential developments that are budding this very year.

Each one of these trends – from the development of early out programs, to legal challenges involving common debt collection communication practices, to the modernization of the FDCPA – will undoubtedly have a lasting effect on the universal state of the debt collection industry when fully matured.

Being a champion or challenger in business can hinge on your debt collection strategies. A client would be well served by periodically offering a “challenge” to the incumbent or “champion”, to keep a check and balance on the liquidation performance and to make sure the champion is not sleeping at the wheel.

The champion and the challenger should both actively engage themselves in debt analysis so they can manage the cost of doing business. The Champion has the advantage of knowing their client’s business trends and opportunities. While the challenger, freshly launched may be able to saturate the market with his monetary resources, it certainly cannot be at the negligence of his bottom line. The challenger should be clever and quick enough to match-up not only with the champion’s more fundamental competitive advantages, but also with the champion’s collections practices.

Whatever the challenger’s established rules are, they should consider debt strategy when making decisions to compete on any economy of scale. Often, consumers are over-leveraged in terms of what they owe in consumer and commercial debt, while whoever takes priority in collections will likely get the lion’s share of the apportionment in dissolution proceedings.

In such an instance, keeping your eye on competitors is smart. In the information age, finding data about businesses is as close as a mouse click away. One benefit of being a champion is experience, but as a challenger, you too need to keep an eye on your bottom line and your reputation when collecting debt from others. The challenger who tools with his businesses, while learning from the champion, can expand a market and attract new clientele using a variety of approaches.

Other approaches to help you go from a challenger to a champion

If your company is employing a law firm to handle “the fine print” of contracts and other communications, making sure the legal semantics are easily understood is an idea worth investing in.

No one wants to be the fall guy, and that is usually where management steps in. Management often mixes and matches systems and experiments with staff for a balance of personnel and top-down controls. Debt collection strategies differ amongst companies. Revisiting the law and what is acceptable is a best business practice of the champion. Also, hiring a good script writer with the knowledge of the market place can only help.

In other words, the champion’s way is to know about your consumers and how to get a hold of them while following regulatory guidelines prior to handling their accounts.

So when calling to collect a debt from a consumer or a vendor, it is best to learn as much as you can about businesses and individuals you will be introducing yourself to over the phone. The internet is a great research tool, and can be implemented at any stage in the collection process to help you gather information. Using key words like names and researching corporate and state public records works well with any search engine.

Tools like Lexis/Nexus from DECA (an online service for searching out a firm or individuals dealings with the court system) are an inventive approach with good value. Let us face it, the more relevant the information that youv hae gathered about a consumer is, the better your chances for collection are going to be.
Attitude in all aspects of life and business are important and can lead you in the right direction, and frankly, a negative attitude can lead you in circles. If it is a decision you have to make with yourself, make it by just being nice to others over the phone. If you are smiling and pleasant, the person on the phone at the other end will sense that. On the other side of the coin, if you are hostile, frustrated or mad, they will sense that too.

Keeping clear notes for yourself is essential, and conducting your business in an organized fashion is paramount. Maximizing your debt collection strategy can be an important step in reducing your losses to individuals or organizations.

Personnel must have strong communication skills and should be assertive in asking probing questions. Open ended questions will provide further notes you may keep with your accounts. Although many can fill agent roles, most likely few will be leading amongst a group of individuals participating in a debt collections firm. This is why having weekly meetings to ensure all representatives are moving toward their goals is essential as part of your process in becoming a champion collector.

To conclude the discussion, we see there are many intricacies in the debt collection model. As a business that exists to turn a profit, collection strategies are as vital to a company’s success as any other organizational function, but we all start out simply as challengers. To become a champion at debt collection takes time, proper checks and balances within the personnel, and a commitment to adopting the strategies and practices of successful champions who came before us.

Photo Attribute: Cochinsquare.com.

Okay so we can’t load the entire deck but here’s a peek. Want to know more? Schedule a meeting with us!

Time to hire a debt collector like DECA?

Not all business owners will be paid for their work, and unfortunately, that’s a trend that has gained traction as our country continues its emergence from one of the worst economic recessions in more than 70 years. While most of the outstanding invoices for U.S. small businesses end up paid, many bills go unpaid for weeks, months, or never at all, leaving small business owners with the uncomfortable and many times ineffective task of internal debt collections.

Though the worst of the recession may be over and the credit markets have stabilized (many public U.S. companies are again establishing their creditworthiness and reporting improved cash flows this year), prevalent demand remains for debt collection services amid the inflated need to address aging account receivable delinquencies. Internal controls and best practices to collect a customer’s payment remains in-house for many small businesses, but there may come times when hiring a professional and effective debt collection agency will be a necessity for small businesses who want to collect.

Many small businesses are forced to write off bad debts, but what if they didn’t have to? Many third-party debt collection agencies, like DECA Financial Services, only charge when a debt is recovered, essentially leaving a company with a percentage of the original outstanding debt. If you’re positive you have aging receivable accounts that will most likely not be recovered by your company, you know it’s time to hire a collection company (the alternative is to let the debt go forever unpaid.)

Here are some industry tips to help small businesses recognize when the right time to hire a debt collection agency has presented itself.

Older invoices often bear less probability of collection

There are clear advantages to companies who develop in-house internal systems for collecting payments, and depending on the industry, company – and buyer – these systems can vary in terms of size, complexity, and of course, efficiency. One of the most obvious advantages is that a small business that’s collecting an outstanding debt has an opportunity to build a stronger, more intimate relationship with that customer while developing long-term prosperity and trust in the process.

Many small business customers’ receivable accounts that are delinquent, however, go unpaid and neglected by the buyer regardless of whatever relationship is established. And the longer a bill has been delinquent, the less likely recovery will be for a company that prefers to internalize their debt collection system over hiring a debt collection agency.

In How to Collect Debts and Still Keep Your Customers, author David Sher confides in this every fact. It’s estimated that for any bill or receivables account that is 30 days past due, the recovery potential is around 97%. As time goes on, that recovery potential dwindles drastically. After 60 days, the potential drops to 80%, and after 180 days, it drops to a mere 40%. Finally, after one year, the probably of recovery is near 0%, indicating the debt should either be written off or passed on to a collection agency.

While considering how and when to determine if a third-party debt collection service like DECA should be hired to collect your company’s outstanding receivables, you’ll want to simply compare the recovery potential (in other words, how long the debt has been delinquent) to the costs of hiring a debt collection agency. If the chances of internal recovery are low and so too are the costs, it makes sense to hire an agency. Keep in mind that the recovery and success rates for debt collection agencies is much higher than the estimations above, which are specifically tied to internal practices of collection among small businesses.

It is important to note that if you have a well written contract that requires the customer to be responsible for all collection and attorney fees, then you can pass those costs on to the customer, thereby making your organization whole. However, this is very difficult when the collection is handled by an internal collection unit as the costs can be difficult to collect and in the event that the matter is escalated to litigation there is a high risk that the court will not award those fees. Thus, an effective collection agency can prove to be much more cost effective to the bottom line than an in-house unit.

Why is the account delinquent?

This tip is much more of a judgment call, a decision that should be made on a case-by-case basis rather than as a generalization for all small businesses who want to collect their outstanding debt. As part of the internal controls for collecting outstanding debts owed by customers, companies want to determine why this debt is outstanding in addition to how long it’s been outstanding.

For example, for a customer who has a long history of making payments on time, sudden and unexpected cash flow issues may be to blame for the unpaid invoice, in which case outsourcing to a debt collection agency may not always be the most compassionate solution. Conversely, a new customer who is in default and has no history with your company carries a much higher risk of non-payment, and in this case, quickly hiring a debt collection agency can make all the difference in whether or not your get paid for your work.

Here’s a good rule of thumb: if you can be sure your invoice has been submitted multiple times and you’re confident the invoice has been reviewed and accepted as accurate and collectable by the customer, using a debt collection agency makes the most sense. Internal or “soft” practices likely won’t work anymore, because at least in this case, you can be confident that the customer is simply refusing to pay your company for the work performed. That is, until you hire a debt collection agency on your company’s behalf.

Debt collection agencies posses skills and tactics that are guaranteed to work

Let’s face it – even companies (especially small businesses) that successfully internalize their debt collection process aren’t in the business of collecting debt, and therefore, face several disadvantages in competing with debt collection agencies in terms of conversion rates. Debt collection agencies train and develop their collectors to comply with federal and state regulations, resulting in fewer lawsuits by consumers; are taught our industry’s best practices, skills, and knowledge; and have deep and invaluable experience in collecting from many a variety of industries, consumers, and environments.

The overall impact that bad debt creates on your bottom line can be managed and minimized by implementing a solid collection strategy. Your company will want to compare the costs of hiring an agency like DECA to the chances that the debt can be recovered internally and the bottom line costs associated with each option. Factor in the fact that debt collectors posses collection tactics, resources, and skills that allow for their services to be much more effective and efficient over in-house collections, and determining when outsourcing is necessary for quick and efficient recovery becomes a little more difficult.

Decision makers need to keep this in mind: if an account is long overdue, the likelihood of internal recovery decreases, and the chances for recovery successful from DECA Financial Services increases. If the debt is owed by a customer who routinely pays their bills on time, acting hastily to hire a collector can damage your future relationship with that customer. Finally, always keep in mind that debt collection agencies are better at successfully collecting debt than your company by itself, so when all internal collection efforts have been exhausted, it’s probably time to hire a debt collector.

Photo attributes: CMG Digital

John Rainier, Strategy Officer, Deca Financial Services, Deca Financial Services is an accounts receivable management firm.