Should I Pay for Collections Up Front?

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.



Another critical question that must be asked before selecting which profit recovery company to use is, "Do I have to pay upfront before I get the money I am owed recovered?"

Some profit recovery companies charge the creditor a flat up front fee per submitted debtor account.
The immediate thought in most creditors' mind is to ponder about why in the world they should pay for a recovery that has not yet happened.  The creditor feels they do not want to pay before a recovery occurs since they believe the profit recovery company will work harder if they only get paid when the debt is recovered.  Most creditors initially instead want to work on a contingency basis so they only pay after the debt is recovered.  This drives some creditors towards working with a standard collection agency that operates on a percentage contingency basis rather than working with the up front flat fee profit recovery company.

The fallacy with this belief is that collection agencies are really NOT paid after the creditor collects the money owed!

Infact, ALL collection agencies, debt recovery companies, and profit recovery companies ARE paid
before you, the creditor, are paid the money that is recovered.  It is unfortunate but many creditors fall into the trap of believing that collection agencies working on percentage contingency basis are only paid after the recovery.

You as the creditor must think carefully through the cash flow trail of a collection or recovery as money is recovered from the debtor until the point it actually arrives in your pocket. 

So let's take a look at the typical collection agency-to-creditor cash flow assuming the debtor owes $100:
     1) debtor is contacted by the collection agency and is coerced
         into paying
     2) debtor sends the $100 to the collection agency just as
         demanded
     3) collection agency receives the creditor's $100 from the debtor
     4) collection agency takes their 30% to 50% fee or $40
         (assume mean fee)
     5) collection agency holds the remaining $60 owed to the creditor
         for another 30 to 60 days (earning interest on the creditor's
         held money owed and impacting the creditor's cash flow further)
     6) collection agency sends the $60 to the creditor
     7) creditor receives the net back of $60

In summary, who got paid first, you the creditor or the collection agency?  Yes, the collection agency did!

Next, let's take a look at the typical profit recovery company-to-creditor cash flow assuming the debtor owes $100:
     1) profit recovery company receives its up front fee of $10
         from the creditor
     2) debtor is contacted by the profit recovery company and is
         coerced into paying
     3) debtor sends the $100 direct to the creditor just as demanded
     4) creditor receives $100 from the debtor for a net back of $90
         after the profit recovery company fee is considered.

In summary, who got paid first, you the creditor or the profit recovery company?  Yes, the profit recovery company did!

Now that it is clear collection agencies and profit recovery companies both get paid their fees first before you, the creditor, get your money, if you are assured both will recover the money owed from the debtor then which would you prefer to hire?  Would you want to get $60 net back or $90 net back?  Few creditors would choose the $60!  So, yes, the profit recovery company is the better choice when recovery performance from both is assumed equal.  If you choose a profit recovery company with a top industry recovery rate then there is no question that it is the best business decision based upon the financials.
 So do not ponder over not paying up front for a recovery since all collections are paid for up front.  Instead, ponder over recovery rate and net back!


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 where the debtors pay you what is recovered directly while you only pay the profit recovery company an up front flat fee of @$10 per late past due account


call us at:

818-710-0244


Series: "Recover Your Business Profits"
Article: #7 "Should I Pay for Collections Up Front?"

Require Third Party Flexibility on How It Handles Debtors

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.

Another critical question that must be asked before selecting which profit recovery company to use is, "How does it legally handle the debtors when contacting them?"

All creditors are not created equally. For that matter, nor are debtors all the same.

In some cases the business the creditor is in dictates the way their debtors should probably be treated.

For instance a bail bondsman creditor probably wants its criminal debtors contacted in a firm and forceful way for effectiveness. However, in contrast, a psychologist creditor probably wants its mentally disturbed patients treated in a polite and negotiating way for effectiveness. Moreover, other creditors may want debtors treated differently on an individual basis. Debtors whom the creditor never cares to do business with again can be handled in a tough manner. Debtors whom the creditor wants retained as a repeat customer can be handled in a coercing manner.

An effective profit recovery company will be able to adapt to the creditor’s desired debtor contact method.

The profit recovery company should be able to:

     1) legally “turn up the heat” with an aggressive intensive approach or

     2) legally “charm the snake” with a negotiating diplomatic approach.

These 2 methods should be able to be assigned uniquely to individual debtors on an account-by-account basis by a good profit recovery company. This fosters the ability for the creditor to get paid and then:

     1) never do business with that debtor again or

     2) retain the debtor as a repeat client.

Do you as a creditor always feel the same way about all debtors who are also clients? Does your opinion on how they should be contacted by a third party vary based upon how they dealt with you during your internal collection effort attempts? Did they insult you, taunt you, or laugh? Were they polite, apologetic, and humble? In summary, should all your debtors be dealt with in the same way? You need the ability to decide. In the end you want your money but you may or may not want a continued revenue steam from that debtor!

So insist that your profit recovery company offer intensive and diplomatic contact methods!

Finally, in those situations when a diplomatic method is desired with the hopes of retaining the debtor as a client, it really helps when a Thank You letter goes out when they do pay as “icing on the cake”. Inquire if your third party can do this?

To inquire about how you can work with a profit recovery company that has both intensive and diplomatic debtor contact methods as well as a flat fee of @$10 per late past due account and 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:           #6 "Require Third Party Flexibility on How It Handles Debtors"

Use a Third Party Before Year's End

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.


At the end of the year it is even more important to leverage this assistance for more than just the recovery.

Even with the best profit recovery company, getting more than 50% after 90 days of aging via written demands is an excellent recovery! For verbal demands to bring in another 20% after 130 days of aging would also be excellent! What this means is that the other 30% best case goes unrecovered! Businesses typically have no choice but to write this debt off.

What "writing it off" really means is to take a positive tax situation for it with the US federal government's IRS department. However, if your write-off is higher than it has been on average in past years then an audit trigger is likely to be set. In the current economy, a higher write-off than normal is likely. The IRS will in an audit situation want justification that the write-off is valid versus being an illegal transfer of money to someone else or you "under-the-table". They will also want to know that it truly was unrecoverable.

Only an unbiased third party collection agency or debt/profit recovery company can offer irrefutable evidence that the write-off was valid and truly pursued yet unrecoverable.

The other thing most creditors must realize is that the debtors that put you in a write-off situation are really no better than a common criminal and infact are maybe even worse. Here is an example (relating to product vs. service) demonstrating why. A typical criminal sneaks in the back door of your business and takes product. A debtor, on the other hand, smiles as they walk in your front door and have you load good product onto a truck on your dock while you incur the cost of shipping to drop it on their doorstep yet they never pay you! You have to ask which is worse!

A key piece of final advice to consider at years end, following an unsuccessful third party collection/recovery attempt and subsequent write-off, is to send the debtor and the IRS a 1099 equaling the price of goods or service delivered. Basically, since they did not pay you, you have paid them income in the form of free un-paid-for product or service. Talk to your lawyer to get specific legal advice relating to doing this before proceeding. This will atleast give you some satisfaction to know that they will have to "pay the piper" taxes on this "stolen" good or service!


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: #YE "Use a Third Party Before Year's End"

Demand Good Communication from Your Collection Agency

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.

Another critical question that must be asked before selecting which profit recovery company to use is, "How excellent is its communication capability?"

The level of communication excellence should be determined based upon:
     1) its ability to work bi-directionally
     2) its technology
     3) its accessibility
     4) its flexibility

On point 1), insure the profit recovery company has the ability not only to accept submitted debtor information from the creditor but just as importantly has the ability to supply needed debtor pursuit status back to the creditor. This debtor pursuit status should include information such as whether the debtor is in bankruptcy, if the debtor address is good or if it has changed, what the recovery phase (written, verbal, or litigation) and step (how many letters have been sent or calls have been made) is, if the debtor has contested the recovery, if the debtor has made partial payment, etc.

On point 2), insist that the profit recovery company have an internet based primary creditor interface for debtor information submission and debtor status monitoring. It is fine if a secondary option exists in a paper or phone format if you are one of those few creditors that do not have internet capability. However, if you do not have internet access as a creditor, it is highly recommended you do so to reap the great benefits. If you are not comfortable with the internet, hire someone full-time or part-time to assist.

On point 3), demand that you as a creditor have the ability to submit debtor information and to request debtor status from the profit recovery company 24 hours per day and 7 days per week. It should be noted that one of the biggest complaints heard from creditors about their collection agencies is that they call their agency and have to leave a message inquiring about a debtor's status and no one ever gets back to them! This really goes hand-in-hand with point 2) since an internet interface is always available per the schedule of you the creditor. An internet creditor interface eliminates the need for information to be "pushed" from the collection agency to you since it is simply "pulled" from the profit recovery company whenever you want it.

On point 4), confirm that debtor information can be submitted to the profit recovery company on a single debtor basis via manual entry or on a multiple debtor basis via a batch file. Also confirm that batch files can be submitted in a variety of formats (ie. Excel, Access, ASCII, Comma De-limited, etc.) so it is compatible with your creditor's business accounting software or ERP system. Make sure that you the creditor can also flexibly select the format in which the debtors are contacted in writing based upon the debt specifics (unpaid invoice, bounced check, un-returned equipment, etc.). Check if there is flexibility in the manner in which the debtors are contacted so that it can be done diplomatically if you the creditor want to retain the debtor as a customer or intensively if you never care to do business with the debtor again.

So as you can see, you as a creditor must select a profit recovery company that has the ability to communicate with you in a bi-directional, high technology, accessible, and flexible fashion.

To inquire about how you can work with a profit recovery company that has high technology 24 hour 7 day a week accessible client internet based interface for debtor upload and recovery status that has a flat fee of @$10 per late past due account and 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: #5 "Demand Good Communication from Your Collection Agency"

Get Paid What You Are Owed Now or Plan on Getting Paid Later

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.

Another critical decision that must be made now is when to hire the third party!

Well an important fact to know is that the majority of what will get recovered will occur within less than 2 months after starting the third party effort.

So the first question you need to ask yourself this time of year (especially if your debtors are consumers - B2C) is, "Do you realize that the holidays are almost here?"

Wouldn't you agree that the holidays are an expensive time for businesses and individuals? There are typically special business lunches/dinners, parties, bonuses, raffles, greeting cards, gift certificates, etc. Individuals typically buy presents, cook meals, travel, etc.

What expenses do you think will take priority during the holidays if there is a limited budget? The priority will inevitably be business expenses to build employee morale and personal expenses for the family. Paying externally focused debts over internally focused expenses will not be the priority! Even worse, those internally focused expenses may be covered via credit cards resulting in an accumulation of even further debt.

So if your business does not get paid for the money it is owed now before the start of the holidays, these clients will probably spend the money they owe you on their holiday priorities versus paying you!

Get the third party profit recovery company hired by mid October to allow sufficient time to obtain the money owed before Thanksgiving and Black Friday (which is the biggest shopping day of the year). Otherwise do not count on a high likelihood of getting paid before the end of January after credit card bills are paid.

Finance your holiday and not theirs!

Now the second question you need to ask yourself this time of year (especially if your debtors are businesses - B2B) is, "Do you realize that most businesses close their financial books at year's end and base bonuses on it?"

Wouldn't you agree that business executives drive very hard at the end of the year to exceed objectives and financial targets to get the largest bonus possible?

Are you aware that in addition to financial targets relating to revenue/sales and profitability, most businesses have a financial target relating to cash flow? Do you know that cash flow is increased by not only getting customer payments in early plus reducing capital expenditure and inventory but also by paying suppliers as late as possible?

If they know you are "flexible on your terms" and they can take advantage of you by paying late, do you think they would delay paying until after December 31st if at all possible knowing that it would improve their cash flow in comparison to their target and increase their bonus?

So if your business does not get paid for the money it is owed now before the holidays at the end of November, these clients will probably delay paying you the money they owe you to help "lock-in" their bonus.

Get the third party profit recovery company hired by mid October to allow sufficient time to obtain the money owed before Thanksgiving. Otherwise do not count on a high likelihood of getting paid until January.

Finance your bonus and not theirs!


To inquire about how you can get your money before the holidays and benefit from a flat fee of @$10 per late past due account via a profit recovery service which has an average recovery rate of 56% 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: #H "Get Paid What You Are Owed Now or Plan on Getting Paid Later"