Important memo for ACCESS Receivables Clients
From: Debbie Gillespie - CEO
Tom Gillespie – President
Date: October 6, 2008
Subject: Effective Collections in a Difficult Economy
We have been in the debt collection business since 1980. During that time, we have experienced some good and bad economic times. We have unfortunately seen large and small clients alike go out of business as a result of neglecting accounts receivable management, loose credit standards and sometimes simply because they fell victim to a dying industry and were not diversified enough to weather a storm. The current situation that we face is different. Before the upheaval in the financial markets in recent weeks, we were already heading for a credit based recession. The average American consumer and business has been over leveraged for several years and has been able to stave off creditors by re-financing their homes and increasing credit lines. Now, we are at the end of a long road. Although your organization may not yet have seen an increase in delinquency or a decrease in business, we want to caution you that the experts are predicting a crash in consumer and business credit and collections, the likes of which we have never seen in our lifetimes. This could ultimately lead to higher unemployment, business failures and a significant increase in bankruptcies. Commercial and consumer lending institutions are hunkering down in the trenches to preserve capital in every way. This is the equivalent of traveling down a highway at 80 miles an hour and slamming on the brakes. In good times, the receivables management department in many client offices doesn’t get much attention from senior management. The emphasis is, quite naturally, on increasing sales. At times like these however a tighter collection policy will be essential to getting paid. The purpose of our memo is to reach out to you before the storm and offer you some suggestions.
- You are competing for dollars. Your customer only has so many dollars to pay bills. The creditor who communicates early and often will get paid, the ones who wait will not. Major credit grantors are now initiating collection efforts within ten (10) days of delinquency. Historically, this would have been 30 days. You are in competition for money with every major credit grantor your customer owes.
- Accelerate placements. If you historically place accounts at 120 days, accelerate the placements to 90 days. Once again, the squeaky wheel gets the oil. In addition, place accounts frequently. Don’t wait until the end of a quarter. Place accounts monthly at a minimum. Some of our clients place weekly or even daily through system downloads. We can help you with that process. These clients tend to get the highest recovery rates. The key here is to place accounts early, reserve for bad debt properly and write- off the ones we return as uncollectable.
- Your collection agency is a bank. Make sure all collection agencies you use are keeping your funds in trust accounts with major banks. Agencies collect millions of dollars per month. If they lose access to your funds or co-mingle funds with their own money, you may be at risk. By the way, a trust account is not any guarantee that your money is protected. It just means that your money isn’t co-mingled with agency funds.
- Knowledge is power. Review your credit standards. Do you get social security numbers, email addresses, credit references and personal references? Can you obtain personal guarantees for some customers? It’s relatively easy for Joe’s Plumbing to change his name to Joe & Son Plumbing to avoid paying creditors. We see it every day by the hundreds. There is generally nothing we can do.
- Protect yourself. Does your customer sign anything? Is your contract tight with regard to payment terms? Do you charge interest for delinquent payers? Do you offer discounts for early payers? Reward the good payers and penalize the delinquent customers. If it is more expensive for your customer to pay your finance charge, maybe they will pay you by credit card or through ACH. Also, speak with your attorney about adding a clause in your signed customer agreement to add collection charges where allowed by law. Require your customers to pay by automatic ACH withdrawal from their checking account and give them discounts as an incentive. This will eliminate many problems.
We want to assure you that ACCESS Receivables Management cares about your business and is dedicated to serving your organization in the best way possible. All of our client funds are deposited daily into separate client trust accounts that are never co-mingled with our own. These accounts are with Bank of America, the largest and most profitable bank in the country. In fact we met with our banking representatives last week to make sure all of our clients could rest easy regardless of the situation.
Regardless of whether you decide to place with our company or someone else, we wanted to share some thoughts with you on this very important topic. This is not a sales letter. We want to keep customers. We lost several major customers after 9/11 as a result of some of the things mentioned in this memo and we don’t want any of our customers affected by this situation if it can be avoided. We appreciate the opportunity to be of service to your organization. Please share this with your upper management. Thank you.
