Make Sure Your Collection Agency Isolates You from Liabilities Due to Their Errors

After reading Article #1 titled "Is Your Business Owed Money?" in my series of "Recover Your Business Profits" blog posts, your business should have concluded to use a third party profit recovery company to free up those profits which are tied up in late past due accounts receivable.


However, another critical decision that needs to be considered when choosing which third party profit recovery company to hire is whether it has a creditor hold-harmless contractual clause to protect and isolate you, the creditor, from liability resulting from their actions coupled with an umbrella insurance policy against any third party violations of law!

The first key criteria that must be used in order to make the decision is whether the third party has a "hold-harmless" clause in its contract with you, the creditor. This is very important to minimize your risk as a creditor since in many cases the hirer of the third party is liable for illegal collection practices by the hired agency or company per the federal FDCPA (Fair Debt and Collections Practice Act).

The profit recovery company should be able to point out the exact clause on the contract where they are isolating you from any legal mistakes their employees might make in complying with federal, state, or local laws. While there are many reputable third party collection agencies, debt recovery companies, and profit recovery companies who make every attempt to follow the "letter of the law," there are some which are not compliant. Even the best in the industry might have only one employee who fails to follow procedure even if as an isolated event. The most likely phase in the collection or recovery process to have this risk is in the verbal demand phase when phone calls are being made from the third party to the debtor. This is why a contractual "hold harmless" clause is a must!




The second key criteria that must be used in order to make the decision is whether the third party is insured. Once again, this is very important to minimize your risk as a creditor since in many cases the hirer of the third party is liable for illegal collection practices by the hired agency or company per the federal FDCPA (Fair Debt and Collections Practice Act).

The profit recovery company should be able to display to you a valid in-force policy for an umbrella insurance coverage with a face value of at least US$1,000,000 dollars per incident and US$20,000,000 dollars cumulative. This protects you from an attempted lawsuit if the debtor sues the third party, even if they have a "hold-harmless" clause, and they can not pay due to a lack of funds.

Make sure you, the creditor, are contractually and financially isolated from liability from unlawful third party practices!


To inquire about how you can minimize your risk with a profit recovery company that has a hold-harmless contractual clause and a multi-million dollar umbrella insurance, while at the same time benefiting from the flat @$10 fee profit recovery service that has an average 56% recovery rate in 40 days for accounts turned over before they exceed 90 days late,

call us at

818-710-0244.


Series: "Recover Your Business Profits"
Article: #4 "Make Sure Your Collection Agency Isolates You from Liabilities Due to Their Errors"

Make Sure Your Collection Agency Follows Federal and State Laws or You Could do Time and be Fined

After Reading Article #1 titled "Is Your Business Owed Money?" in my series of "Recover Your Business Profits" blog posts, your business should have concluded to use a third party which is a profit recovery company to free up those profits which are tied up in late past due accounts receivable.


However, a critical decision that needs to be considered when choosing which third party profit recovery company to hire is its licensing and where its offices are located!

The first key criteria that must be used in order to make the decision is whether the third party is licensed (not necessarily located) in the state where the debtor resides. Federal law states that a collection, debt recovery, or profit recovery agency or company can not collect out of state by mail or phone in a state unless they are licensed in that state. So the simplest way to avoid having an issue where your third party can not collect from your debtor because they are not licensed in the state the debtor resides in or, worse yet, where your third party breaks the law is to insure they are licensed in all states. This is very important to minimize your risk as a creditor since the hirer of the third party is liable for illegal collection practices by unlicensed agencies and is subject to a $10,000 fine or up to 5 years imprisonment per section 897(c) of the federal FDCPA (Fair Debt and Collections Practice Act).

The second key criteria that must be used in order to make the decision is whether the third party physically has an office located in restricted/closed or partially closed states if the debtor resides there. At the time of the writing of this article, 18 states were closed and 8 were partially closed. Each state law is unique but the closed and partially closed states basically require that a collection, debt recovery, or profit recovery agency or company can not collect in their state by mail or phone unless they are located (with an office but not headquartered) in that state. So the simplest way to avoid having an issue where your third party can not collect from your debtor because they do not have an office located in that closed or partially closed state that the debtor resides in or, worse yet, where your third party breaks the law is to insure they are located in all closed and partially closed states. Again this is very important to minimize your risk as a creditor since the hirer of the third party based upon the state may be liable for illegal collection practices by non-local agencies and may be subject to fines and/or imprisonment.



Make sure you the creditor do not do time or pay the fine for internal unlawful practices or an unlawful third party!


To inquire about how you can minimize your risk by using a profit recovery company which is licensed in every state and which has offices in all states where it is required, while at the same time benefiting from the flat @$10 fee service that has an average 56% recovery rate in 40 days for accounts turned over before they exceed 90 days late,

call us at

818-710-0244


Series: "Recover Your Business Profits"
Article: #3 "Make Sure Your Collection Agency Follows Federal and State Laws or You Could do Time and be Fined"

"Cost of Collection or Recovery Rate Itself, Which is More Important?" That is the Question!

After reading Article #1 titled "Is Your Business Owed Money?" in my series of "Recover Your Business Profits" blog posts, your business should have concluded to use a third party which is a profit recovery company to free up those profits which are tied up in late past due accounts receivable.


However, another extremely critical decision that needs to be considered when choosing which third party profit recovery company to hire is what that third party's recovery rate is!

The fact of the matter is that the largest account receivable losses a creditor will incur has nothing to do with the cost of collection loss against them but rather the loss due to what is not recovered at all.

This is why a third party needs to be hired by creditors no matter what in order to increase the likelihood of recovery and the creditors must remember "the earlier the better"!

Obviously, a creditor wants to pay the least amount possible for the collection and that is why a profit recovery company is better than the other alternatives. However, if that third party's recovery rate record is not substantiated with facts and is not good compared to the industry, whether a profit recovery company or not, then you should look for another third party! Ask to see reports from the third party substantiating results and ask for client recommendation letters supporting this. Ask how that third party compares to the average based upon the American Collectors Association (ACA) statistics. Look to see what reputable magazines and journals like Fortune, Investor's Daily, and Barron's say.

Recognize though that recovery rate is also affected by things outside the control of the third party and here are the 3 most important outside effects:

1) Age of the debt (most important)

2) Consumer or business debtor type (consumers are more difficult to collect from than businesses)

3) Industry or market sector of the debt which really reflects the classification of debtor (for instance if a creditor is from the bail bondsman sector their debtors are criminals and are much more difficult to collect from than if the creditor is from a court reporter sector where their debtors are lawyers and are much more simple to collect from).

So when a third party's recovery rate is looked at, these above points need to be considered.

When looking at reports, look for ones that are similar to your situation and preferably in the same industry or market sector.

When looking at ACA statistics, look for the third party's overall total recovery rate for the previous year across all debtor types and classifications and within a similar aging range (ie. less than 90 days and/or less than 1 year) but it should probably not include debts greater than 1 year old since the number of old accounts included can unfairly taint the statistics and since age is a more significant effect than effectiveness.

Another important thing to remember is that all recovery or collection efforts transition through 3 basic phases as governed by federal law. Written demands (phase 1) must be issued in writing first to the debtor followed by verbal demands (phase 2) where phone calls are made to the debtor and ultimately litigation (phase 3) by taking the debtor to court. It is important to note that the facts show that the greatest percentage (@80%) of debts which will get recovered get recovered in the first phase! So understanding the recovery statistics of a third party relating specifically to this first phase for debt less than 1 year old versus the ACA norm is of the utmost importance. Average phase 1 recovery rates of greater than 40% for debts with aging less than 1 year would be considered very good. Next, understanding the recovery statistics of the third party relating to the second phase for debts less than 3 years old versus the ACA norm should be investigated. Average phase 2 recovery rates of greater than 20% for debts with aging less than 3 years would be considered very good.


To inquire about how you can increase your recovery rate by using a profit recovery company which Fortune Magazine says "... has a collection rate well over 50%" while at the same time benefiting from the flat @$10 fee per late past due account,

call us at

818-710-0244.


Series: "Recover Your Business Profits"
Article: #2 ""Cost of Collection or Recovery Rate Itself, Which is More Important?" That is the Question!"

Is Your Business Owed Money?

Your business, like most, does great work and you should not feel guilty about expecting to get paid promptly on-time per the agreed upon terms!

Unfortunately, the facts show that for every 100 clients billed at least 3% go late past due and depending on the market sector the percentage may be much higher. To complicate the matter, in the current economic situation, these percentages have been rising.

Now your business is inevitably spending time and resources on trying to get those clients who are late and have not paid to pay. The problem is though that many Accounts Receivable departments spend far too much time internally trying to get those late past due clients to pay.

Numerous expert recommendations have been quoted in newspapers like the Wall Street Journal as well as in magazines like the LA Business Journal stating that after 90 days internal collections should be turned over to an external third party for assistance with the collection. The facts are clear, if a late past due client (debtor) has not paid after 3 months of encouragement from the business (creditor) who has sent extra invoices, letters, and probably made phone calls then they probably will not react to additional efforts. This is why banks foreclose on late mortgages after 3 months of missed payments (ie. 90 days).

Even more important is the fact that, per the U.S. Department of Commerce, a debt which is late starts to rapidly reduce in its probability of being recovered just after 90 days. Just after 90 days, it reduces at its highest rate of 1/2% per day being lost.

What is needed is the involvement of a third party after 90 days to contact the client debtor on behalf of the business creditor. The fact that a third party has the ability to affect the client's credit wields a great wealth of power.

Surprisingly, far too often a third party is not hired by the business though! The two most common reasons given are:

1. We have a great A/R group and will handle it ourselves!
2. I do not want to offend my client since I want to retain the client!

As previously mentioned, point 1 has nothing to do with how good a business' internal A/R department is but rather everything to do with their inability to have a real impact on the debtor's credit rating in order to force a debtor to pay if they have not after 90 days of trying. Remember what the experts said! So point 1 really must be discarded as a valid justification for not hiring a third party.

Relating to point 2, if a client really must be retained then there are ways that a good third party can diplomatically handle the payment pursuit so as to not offend. Even more important is how the business itself responds to the client if and when they call to ask why they have been placed into "collections". The most appropriate way to respond to an irate or concerned key client who is a debtor is simply to say that the billing and collections efforts have been out-sourced, that you were unaware that they were so late in paying, and that if they simply expediently pay you will insure the collections pursuit is terminated. Getting paid on-time even by some of your biggest clients is very critical for your business viability. Do not confuse the fact that a client is large with the fact that they will inevitably eventually pay. How many suppliers do you think considered General Motors or Chrysler as key large customers who they did not want to offend? These same businesses (suppliers) probably tolerated outstanding late payments and did not involve third parties early enough to beat the declaration of bankruptcy which left those businesses "holding the bag" of most the debt at pennies on the dollar! So point 2 also must really be discarded as a valid justification for not hiring a third party as well.

Now that you see that a third party must really be hired to help get late past due accounts receivable collected, the question that must be asked is, "What is the right third party to use?" Well here are the options:

     a) Handle it internally by taking it to small claims court if the
         debt is small enough
     b) Handle it internally by placing a lien on the client's property
          if applicable
     c) Hire a lawyer to pursue the debt if the debt is large enough
     d) Hire a collections agency
     e) Hire a profit recovery company

Option a) typically requires allot of internal time to be spent filling in court forms, pulling together backup facts, and attending at least a half day at court. A court fee is also required. With an internal labor cost estimate of a conservative $10/hr., it is quite reasonable to expect at least $200 in cost to be incurred for the paperwork preparation, time in court, and court fee.

Option b) typically requires time to be spent filling in government forms, pulling together backup facts, and spending time at a government office. A government fee is also required. With an internal labor cost estimate again of a conservative $10/hr., it is quite reasonable to expect at least $100 in cost to be incurred for the paperwork preparation, time at the government office, and government fee. Even more important is the fact that no money will be recovered until the property with the lien is actually sold. If there is no sale then there is no money collected and years and years can go by before a sale ever happens.

Option c) will run at least $100/hr. for the most novice of lawyers and can run over $400/hr. for a seasoned expert lawyer. As you might imagine, it would not be uncommon for a lawyer to spend several hours on the simplest of collections resulting in a bare minimum of $200 for the novice lawyer. It would be much more typical though for >30% of the debt to be consumed in lawyer costs and for an upfront retainer to be requested. You also must remember there are internal costs incurred again to pull together backup facts for the lawyer.

Options d) will typically cost 20% to 50% of the amount of the debt whether the debt is collected in the written demand, verbal demand, or litigation phases. This means no profit is left in the collection since very few businesses make in excess of 20% profit!

Option e) will cost a low flat fee of @$10 per late account. On debts over $100, it is highly likely that some profit will be retained after the recovery!


To inquire about how you can benefit from a flat fee of @$10 per late past due account via a profit recovery service which has an average 56% recovery rate in 40 days for accounts turned over before they exceed 90 days late,

call us at:

818-710-0244 .

Series: "Recover Your Business Profits"
Article: #1 "Is Your Business Owed Money?"

Would You Like Tips to Help Improve Your Internal Collection Effort Results Prior to Involving a Third Party?

To inquire about how you can benefit from a flat fee of @$10 per late past due account via a profit recovery service which has an average 56% recovery rate in 40 days for accounts turned over before they exceed 90 days late,

call us at:

818-710-0244 .



Series: "Recover Your Business Profits"
Article: #0 "Would You Like Tips to Help Improve Your Internal Collections?"