Many companies fall in love with their accounts receivables and do not manage the collection process properly. Based on the Commercial Law League the likelihood of getting paid on a past due invoice declines roughly 1% per week. By the time a receivable becomes 90 days past due there is a 26% chance the debt will be uncollectible.
If your business relies on billing to collect customer payments, you've probably tried to come up with creative ways to notify people of the money they owe. Using phone calls is a tried and true method, but new government regulations and the pervasiveness of caller ID on smart phones has made it easier for consumers to screen out calls from people they don't want to talk to. Where else might a business turn to notify a customer of their required payment?
According to Business Insider, the average person touches their phone more than 2,000 times per day. Although they could be ignoring calls, mobile users are still texting, browsing the web, checking e-mails and playing games. So, it makes sense that a business would want to send them notifications on the device they are already using. However, federal laws dictate how these calls, e-mails or text messages can be made, and many tactics that could come to mind may violate existing law in some way.
Debt collection can be a time-consuming process. The time needed to track down customers with unpaid bills uses up valuable resources that could be better served operating and growing your business.
Rather than going through the exercise of debt collection on your own, an alternative option is to hire a debt collection agency to help you. Using a collection agency provides you and your business four key benefits.
The economy is a constantly changing entity. While it's shown promise recently, there are consumer debt trends worth watching. Economists have been keeping close watch on subprime auto loans recently, and student loans are a frequent subject of debate.
Third-party debt collection agencies are not immune from regulation, regardless of how their efforts may feel to consumers. Collection agencies have a reputation for aggressiveness, in large part because their own financial health depends on how efficiently and fully they can collect from those who owe money. But those aggressive tactics may ultimately end up benefiting consumers. That's because lenders that are able to recoup their losses have more money on hand to extend as credit. When lenders lose money to delinquent borrowers, they have less money to extend to anyone, including those with good credit scores.
What are the rules?
When the Fair Debt Collection Practices Act was first passed in 1977, a distinction was made between those who are collecting on debts owed to themselves and those collecting on behalf of other entities. The idea was that creditors who collect on their own behalf are more likely to behave. They are far less likely to use deceptive or abusive tactics, the argument goes, because the debtor is their own customer.
Debt collection agencies, on the other hand, had been known to use a variety of collection practices that are considered unfair, including the use of abusive or harassing language, calling debtors at times known to be highly inconvenient, and bypassing debtors' attorneys in violation of the law.
When a person has a significant amount of debt, they often find themselves in a heightened state of vulnerability. In an effort to respect every individual's circumstances and to prevent fraud, the Internal Revenue Service has tried to remain transparent in their processes.
Unfortunately, many citizens are not familiar with IRS policies and they fall victim to fraud schemes. These schemes often involve people impersonating IRS workers who pressure indebted individuals into sending out large amounts of money that they supposedly owe. Many people are concerned that new IRS policies will make this easier for criminals.
Debt collecting is an intensive process that keeps you away from doing what you do best: running and growing your business. It does not help that there are so many rules that need to be followed. If you make one misstep and fall onto the wrong side of laws like the Fair Debt Collection Practices Act (FDCPA), you could seriously damage your business.
But you need your cash flow to keep flowing.
In the quest to collect a debt, one of the most common tools is the debt collection letter. However, the content of that letter must be carefully crafted in order to ensure it adheres to the Fair Debt Collection Practices Act (FDCPA). An article from InsideARM demonstrates how a novel attempt to collect a debt can land a debt collector in hot water.