Commercial Collections Blog

How to Recover Your Delinquent Accounts

Everyone, at some point in their life, has had money problems. But how you handle them affects your business’ cash flow. If you let your customer’s account go unpaid for long periods, the less of a chance there is to collect your money.

There are different signs a company will need to look for when analyzing customer accounts. The signs include late payments, bounced checks, excuses, avoidance, and non-payments. Each time a customer uses one of the signs, that customer becomes less likely to pay their account in full.

How To Recover Delinquent Accounts

Late Payments

One of the first signs that a customer may have money trouble is late payments. The customer, this is the debtor, will continue to pay on their account, but the payments begin to get later and later. When you contact the customers making the late payments, you receive different reasons and excuses. Some of the customers will have legitimate reasons, but many will start down the road towards collections and non-payment.

Consistent late payments start to affect the company’s cash flow. The company cannot rely on the timing of the cash. As customer payments become more inconsistent, the cash struggles can transfer to the company itself. The cash shortages affect the company’s ability to pay its expenses and purchase assets.

Past Due by 30 Days

As a customer’s account balance moves past 30 days, the company needs to start taking a more active approach to collecting the outstanding amount. Additional procedures for collecting the outstanding balance include mailing letters, phone calls, and possibly emails. Some customers respond to the additional collection notices by making their payment. Others will ignore all the correspondence.

Over 60 Days Past Due

When the customer’s account moves to over 60 days, the company needs to decide whether to take the next step. The next step includes transferring the account to a collection agency. At this point, the company may not receive the total amount due. The collection agency may negotiate a lower amount to pay off the account balance.

Once the account is turned over to collections, the company writes off the account balance. It is then up to the collection agency to collect the balance. The company receives a lesser amount from the collection agency and is now relieved of the burden of a hard to collect account.

The Collection Agency

When an account is sent to a collection agency, the agency begins to make contact with the customer. The contact begins with notifications of the outstanding balance. When the notification is sent, the customer is made aware of the outstanding balance and the option to set up a payment plan.

As the balance remains unpaid, the collection agency becomes more aggressive in the collection efforts. The phone calls and notifications increase. The agency now begins negotiating a reduction in the payment to fulfill the customer’s liability. Many times the reduction is larger if the customer decides to make a one-time payment.

The collection agency will continue to make an effort to collect the balance. But if the agency does not have any luck in reaching the customer, the next step is going to court. The agency then files a lawsuit to get a court date. The court then issues a summons for the customer to appear and provide an explanation for the non-payment. If the customer does not show up for court, the judge can issue a verdict in favor of the collection agency and require the customer to pay the balance.

The court can take several avenues in getting the settlement. The first option is the court may decide to establish a payment plan. The payment plan may require a court-ordered automatic deduction from the customer’s payroll. Another option the court may take is to place a lien on the customer’s property. The court may also opt to seize the property and hold a public auction. The proceeds from the sale of the property then pay the collection agency for the outstanding balance.

Customer Responses

The collection agency needs to understand the customer’s responses. The first thing a customer may request from the agency is verification of the debt or the transferring of the debt back to the originating debtor. These requests allow the customer more time to decide on the payment terms. The next response from the customer may include trying to renegotiate the payoff amount. The customer may request an outrageously low payoff amount in the hopes that the agency will agree.

The customer may also become hostile about the amount of contact by the agency. If the agency’s contact is excessive, the customer may take legal actions against the collection agency. The agency needs to understand the legal repercussions of excessive customer contact and set the appropriate procedures. 

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