Debt Collection -When does it start?

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Where does it start and what to expect when escalated to a third party for collection?

In the past I have written articles with regards to due diligence. This is important and I highlight a few further points below. It is important to remember that debt collection starts at the outset of the “sale” in considering the risk of late or non-payment.

https://www.linkedin.com/pulse/due-diligence-what-why-bother-jim-sleith

·        Do identify your customer

·        Do get a written contract and have it supported by your terms and conditions. If you are reliant on the customer’s terms & conditions, ensure you read, understand and agree with them. If not, push back and ask for changes/clarification

·        Ask your customer to complete a credit application form/client information form and consider having a clause making directors personally liable in the event the company does not pay. (you may have this in your T&C’s but no harm having it in another document signed by a director)

·        Credit check your customer, consider how much they have in assets and cash (if they file full accounts) but, remember, the financial information is out of date as soon as it is filed. Also, when it comes to debts they are owed, think about how much of it is collectable. Some companies leave debts on their books as assets even although they know the likelihood of collecting is minimal if at all.

·        Remember a credit check is not enough as highlighted here-https://www.linkedin.com/pulse/caution-why-credit-referencing-reports-enough-protect-jim-sleith

·        Check the average time they take to pay suppliers.

·        If you are happy with the risk then agree payment terms (remember the late payment legislation states that payment terms should not be beyond 60 days from date of invoice), get a purchase order etc. You should have the name and contacts details of the person responsible for payment if your credit application form was completed and returned. (if not ask and chase for return of the form)

·        Thereafter, you should chase payment in line with your credit and collections policy.  (This policy should state when to stop working in the event of non-payment.) Take every opportunity you can to remind the customer of agreed payment terms.

Escalating to a third party for collection.

I want to highlight what most debt collection agencies (larger ones anyway) will do to collect your debt now that you have escalated it to them for collection.

First, most large collection agencies have a lot of customers, collections staff have maybe one or two years’ experience in debt collection (not credit management, crucial difference) and need to get through as many calls as they can. Quite often, they will be pushed by managers to make more calls irrespective of how productive those calls are.

They will have a set collection process (much like your credit and collections policy) along the lines (all will differ in time periods) of: –

·        Day 1 Debt added to system and first reminder letter sent

·        Day 7 Phone call; either speak to the debtor or leave a message

·        Day 14 second reminder sent

·        Day 21 another phone call. Speak to debtor or leave a message. Follow up with an email

·        Day 30 final demand letter giving 7 days to pay or else!

·        Day 37 phone call, speak to debtor who will possibly say to call back, or there is a dispute. In the event of a dispute the collection agency will stop “working” the debt and refer to you for resolution. It is possible you resolved this prior to passing to collection agency.

·        It is very unlikely that staff at a large collection agency with targets for phone calls etc. will deal with your dispute. They may advise the debtor your resolved in the past but the debtor may continue to insist it is disputed thus either delaying the payment further or forcing you to take legal action or refer to alternative dispute resolution.

·        If the debtor does not raise a dispute but continues to fob off the collections staff or does not take calls. The collection agency will likely refer (with your approval) to a solicitor.

·        Day 38/39 a solicitor sends a letter demanding payment within 7 days or else!

·        Day 45/46 no reply to collection agency or solicitor and no payment.

·        So, we are now looking at 45/46 days (possibly longer) since being referred to the collection agency. Add this to your credit terms of say 30 days, the time allowed prior to escalating (as outlined in your credit and collections policy, presuming you/your staff adhered to it) and you could be 3,4,5 months down the line and still no payment.

·        So, you start court action, they have circa 21 days to pay or acknowledge or defend.

·        Acknowledging and indicating they will defend is a common practise as it gives them a further 14 days to pay or defend your action.

·        If they defend, you are now 6 months down the line and looking at a year to a year and half (in English courts) to get to trial.

·        So what is the moral of the story? What can be done to improve the timescale?

·        It is important to act fast, if a customer is adamant they are not paying then cut your own internal collection process short and escalate.

·        Escalate to someone who will act fast, someone with vast experience in credit management, someone who is not just a “phone basher” who will escalate very quickly if there is no prospect of an amicable collection/solution.

·        JMS Credit Consultancy aim to resolve issues quickly to obtain settlement or escalate quickly. We don’t see the point in following a set process (you have already done this) which could delay escalation by up to two months if not longer.

·        We happily deal with disputed debts, of course it is vital we are provided with as much details at the outset as this allows us to understand the issues and quickly establish the facts. Facts we are very happy to remind the debtor of and that there is in fact now no excuse for non-payment.

Written by Jim Sleith of JMS Credit Consultancy www.jmscredit.co.uk

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