Business Article about Collections :
Collections is an area most people and companies do poorly with regard to recovery of funds past due. The fundamental problem is most companies and people do not recognize they do not have the money. They tend to brow beat rather than encourage the late payer to put them in the A pile and pay them. They do not emphasize positive outcomes but rely virtually exclusively on threats, which rarely work since so many are thrown about in the collection business.
Do not inflict guilt and project anger upon the nonpayer. This is a sure fire way to alienate them and get placed firmly in the B pile. Despite these provocations, most late payers do pay. However, the letters and correspondence generally hinder the process rather than help it.
Our purpose here is to help you prepare your plan to get paid and stay firmly in the A pile. The first step must start with you. If you are an individual and someone has not paid you, first assess how the transaction started. In other words, did you lend money or grant credit out of weakness of some kind? In other words, was it a family or personal obligation you felt compelled to do? Or did you gave credit to someone to facilitate a sale but knew they had poor credit and knew from the beginning it was a big risk?
The reason for this analysis is that if you knew up front you were going to have a problem the best remedy was at the headwaters of the problem. Damming up the Mississippi would be a pretty easy task at the source when only a few inches wide. InSt. Louis it is a virtual impossibility when the river is then one mile wide.
If you recognize this, you can see your participation in the problem by letting the deal go forward in the first place. This means you share responsibility for the outcome because you knew it was at least possible, and perhaps probable, that collection problems might arise later. This should cause you to roll up your sleeves and try to help, understanding the chances of collection aren't good and therefore softening your judgment abouttaking less, and possibly far less, in full settlement.
What can you do to assist your collections process?
First, if you are considering a loan to anyone, and especially a family member, have a promissory note (a fancy term for an IOU) signed by the person, witnessed by another family member (if you are going to do it, get a little credit), with interest rates attached and a default interest rate in addition. As we say in our Legal Guide CD, the best result is the person declines the loan, when realizing they must repay it. If they sign it, thenyou have the note to back it up, plus the witness to verify that.
Secondly, if granting credit to a person you are unsure of, be sure to build in sufficient pricing to cover the percentage of defaults you expect. Citibank does this brilliantly inthe credit card business. They just price interest rates higher for certain classes of borrowers. This lets them issue credit cards, collect interest, write off a percentage ofthe debt, and still come out ahead. Learn from them.
Third, if possible, get a signed note from the person you are granting the credit to.
If you start to do this now, soon enough your collection problems will be more manageable. You will have clear notes to collect on. You will charge higher prices to cover predictable losses.
Now you can start writing your letters.
Collection letters should be written like requests in our Request section. The moment a person is late, you have more of a problem than they do. You want the money. They only want you to go away.
Remember they are paying other people and companies, just not you. You want to climb up into that A pile that gets paid.
Assume they know they are late. So don't start out moralizing about how, essentially, you are right, they are wrong, and they are scum for being wrong. No matter how you dress up the language, this is the essence of most collection letters.
What we recommend to get yourself in the A pile is to offer your help and support.
We know you would like to pay your bill to us on time but evidently can't for some reason. Perhaps you can share the reason or reasons with us, and we can work together to help you pay us.
Let us know as soon as you can what your thoughts are so we can relax on our end and help, to the extent we can, to start getting us paid.
With best regards,
Sears has a wonderful test for nonpayers. They ask what someone can pay. They go as low as $1. Why? So the payer can get started easily to work down the debt. It will also demonstrate to you whether you have any chance of collecting or not. If they wontpay just a buck, either sue or write it off.
Second letter to Kim :
We were sorry not to hear from you. Please let us know your thoughts on paying us. Since you owe us $990.00, please pay us at least $10 in good faith this week. If you can't do that, pay $1 to show your seriousness about the debt.
We would love to hear from you about any way we can assist you in paying us off.
Note the lack of threats about collection agency reporting (what good will that do other than to reduce their credit so they can pay you even less), lawsuits, or the rest of it. They know. They don't need to hear from you about it.
The best part of this approach is if you have to sue to collect the other party knows you have done the best you could along the way. This is especially effective in real estate rental. If the person can't pay, you want them out without trouble.
A real estate letter of this type I have used goes like this:
I know you have tried really hard to keep up with your rent but just can't. We need the money to pay the bank or will lose the property.
So if you cant pay the rent, why dont we work out a way for you to leave as promptly as you can arrange and we can negotiate a reduced amount for the balance due.
Think it over and decide what can work for you. Then let's talk. We are really sorry about this but our bank won't wait too much longer.
With best regards,
If they could pay, they would pay. If you are nice, they are apt to leave the premises in good order. Take a reduced amount, and I have often taken zero, just to end simply without court costs, anger, and beaten up property.
Remember in collections: they have the money. You dont. So they have what you want and you must request it. If you are nice and firm, you have the best chance.
Or as a good friend of mine Rick Green says, You can get the money or be right. You can't get both in collections.
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Business Article about Collections
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