Secrets Every Creditor Should Know!

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.


If you have not yet concluded this from Article #1, consider these extremely important secrets that every creditor who is owed money from late past due debtors MUST know!

1) Spending internal company resources to pursue collecting from past due debtors who are more than 60 days late is expensive, creates lost opportunities for resources to work on other things, and impacts cash flow. Internal collection costs more than 10 years ago were shown by the Dartnell Institute to range from $20 to $30 per late past due debtor account. We had prospective clients doubt these costs. However, their own recent studies really surprised them as they came up with internal costs in the $50 to $60 range per late past due debtor account! You might ask, “Where in the world could this much cost be incurred?” Well, one major part of it is comprised of the fully loaded salaries and benefits of the people in the company’s Collection Department times the average amount of time worked on a late past due debtor’s account to try to get payment by sending duplicate invoices, writing and sending letters, and making phone calls. There is also the cost of paper, ink, envelops, and postage to send duplicate invoices and letters. Additionally, there is the cost of telephone charges to make the phone calls. Finally, do not forget the overhead costs for IT, building office space, utilities, etc. While all the internal collection pursuit is going on, the Accounts Receivable Department is taken away from correctly managing invoicing to customers who have not yet passed terms. Last but not least, cash flow is constrained while internal resources, who really wield no power over late past due debtors, are feverishly trying to coerce them with polite requests.

2) Continuing to ask debtors to pay over and over in different ways with internal resources is futile. If a debtor is late past due by 60 to 90 days maximum then ongoing attempts are a waist of time. Just check your company’s own data. Be assured that debtors who have not paid by the 3rd statement (re-invoice and letter) do not pay on the 4th, 5th, or 6th statement! There is nothing more you can do internally to strongly motivate them to pay. Collection agencies and debt recovery companies exist for a reason. Very simply put, they are effective because the debtors know they have the potential to impact their credit. Realize though that a credit impact is never the real goal. The real goal is to get the creditor paid and not simply to “black mark” the debtor. After credit is affected then there is no real inspiration for a debtor to pay so it should only be done as a last resort. This is why so many judgements go unpaid.

3) The expense of the depreciation of debt far out weighs what any collection agency or debt recovery company could charge. After 90 days late past due, the probability of recovery of 100% of the debt begins to depreciate at its fastest rate of ½% per day! By 1 year late past due, only 10% of what is owed by an individual or 29% of what is owed by a company will be recovered. Inotherwords, the cost of depreciation is 90% for a B2C transaction or 71% for a B2B transaction! Even the highest cost percentage collection agency will only charge 50% of what is owed. So see, focus on recovery early as the priority by using a third party versus worrying about what a third party will cost you!

4) There is such a thing as diplomatic collections. Infact, many companies believe they should pursue late past due debts solely in house to insure the clients (debtors) who are desired as long term customers are not offended in the process. So if companies believe their own in house Collection Departments can be diplomatic then why on earth should they believe that a third party can not. Infact, third parties can treat debtors just as diplomatically while wielding the threat of a credit impact subconsciously in the debtors mind simply because they know a third party versus the first party is contacting them! No threats or impolite treatment is necessary. All that is necessary in most cases is for the debtor to simply know that it is a third party who is talking to them. Some debt recovery companies offer unique account-by-account debtor treatment in a diplomatic or intensive way and even send a thank you letter after payment is made in full.

5) Collections is a way to keep customers. Put simply, if a debtor owes your business money and many other suppliers compete with you then it is easiest for a debtor to simply go to your competitor rather than face you to explain why they have not paid. A great analogy is as follows. Assume you rack up a large debt at your dentist and never pay. If you have a bad tooth ache one year later, would you go back to the dentist you owe or go to another dentist? Obviously most late past due patients will avoid the owed dentist like the plague to avoid embarrassment! So see, collecting early but politely from clients you want to retain is actually a way to keep them coming back!

6) The vast majority of money is collected through the mail. Federal FDCPA law dictates that all collection attempts start with letters or written demands. The facts show, and all insiders within the collection industry know this, that 80% of everything that does get collected which is late past due gets collected during the written demand phase! Only 20% needs to go on to phone calls and maybe litigation. Moreover, the lowest cost phase of collections is the mailing/letter/written demand phase. So why pay third parties high percentages for the 80% that are collected via a low cost method?

Now that you know the secrets, hopefully you have concluded from Article #1 and Article #11 that you MUST use a third party early to maximize recovery! If this third party is a profit recovery company you will even better yet minimize the cost of recovery in order to leverage the best alternative to free up those profits which are tied up in late past due accounts receivable!


To inquire about how you can work with a profit recovery company that has an average 56% recovery rate in 40 days for accounts turned over before they exceed 90 days late and how you can do it for a flat @$10 fee per debtor account recovery cost,

call us at:

818-710-0244


Series: "Recover Your Business Profits"
Article: #11 "Secrets Every Creditor Should Know!"