After your plan has been implemented, be firm and persistent
when dealing with customers, but balance that with a savvy approach
to maintaining customer relations. "Flexibility and
persistence are key," asserts Mark Kushinsky, president of
Boston-based MaidPro Corp. "We've had great luck with
collections where we have continued to supply services while
collecting past-due amounts."
Kushinsky, 36, has learned from past experience that just
sending past due notices is not going to get the job done.
"You need to communicate with your customer and [set] dates
and amounts," says Kushinsky. "If the agreement is
broken, follow up as soon as possible."
Still, no matter how comprehensive your credit-collection plan
or how effective your due diligence, a customer may still choose to
ignore your in-house attempts to collect the overdue account. When
this happens, your best chance of collecting is either through a
collection agency or by turning the matter over to an attorney.
Collection agencies typically assume all collection
responsibilities and charge 25 to 40 percent of what they collect.
If they can't collect the debt, they usually do not require any
payment for their work.
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"We use collection agencies as a last resort," says
Kushinsky. "In most cases, the customer wants to pay but is
unable to due to economic conditions. Collection agencies only work
if the debtor has the means to, but has no intention of, paying the
debt."
Still, collection agencies have limited means of collection
other than through phone calls. A collection attorney, on the other
hand, gives you the strong upper hand in that there's an
immediate threat that legal action could be brought against the
nonpaying customer.
"Use an attorney who devotes most of his or her practice to
commercial collections work," advises Baumann. "A good
collections attorney has the technology and staff to locate assets
of the debtor quickly and explore the best options for the most
efficient method of collecting the debt."
Attorneys typically handle collection cases on either a
contingency or an hourly fee basis, depending on the situation.
According to Baumann, collection attorneys will handle a case on a
contingency basis if the debtor has sufficient assets. With a
contingency fee agreement, the attorney retains a percentage of
whatever is collected. "Depending on how difficult it will be
to collect the money, most lawyers charge 25 percent to 33 percent
for a contingency case," says Baumann.
Though a contingency fee agreement carries virtually no risk for
the entrepreneur, an hourly fee arrangement may be a better course
of action. "If the collection is for a large amount and the
debtor has assets, hourly is the most economical route since it is
likely the case will not be labor-intensive," says Baumann.
"It has to be evaluated on a case-by-case basis."
When a customer isn't responding to your efforts to collect
or has flat-out refused to pay, it may be a telltale sign that
bankruptcy is on the horizon. "If one of your customers files
for bankruptcy, the law gives them an automatic stay from creditors
as soon as they file the petition," explains Baumann. That
means you must stop your collection efforts and go through
bankruptcy court to collect your dues. You should contact counsel
immediately after you receive notice that your customer has filed
for bankruptcy because rules regulating time and payment can be
complex.
But don't try collecting a debt immediately before the
customer files for bankruptcy, cautions Baumann. The bankruptcy
code allows the court to take back the money the customer paid to
you and put it back under the bankruptcy court's control so it
can be distributed to creditors in accordance with bankruptcy
laws.
No matter what the economy brings in the coming months, Parker
predicts that systematic collection will become an indispensable
and permanent part of the business community. Says Parker,
"It's good, common-sense business."
Sean P. Melvin is an author, attorney and assistant professor
of business at Elizabethtown College in Elizabethtown,
Pennsylvania.
Contact Sources
- Sulmeyer, Kupetz, Baumann & Rothman
(213) 626-2311, www.skbr.com
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