By Dean Kaplan, CEO and President, The Kaplan Group
Debt collectors have a bad reputation. In news stories, debt collectors either act illegally, threaten and harass, or are seen as benefiting from someone’s misfortune. However, I worry that because of the misconception about debt collectors, many business owners are losing money that is recoverable and rightly theirs. Here are 10 of the biggest myths and misconceptions about debt collectors and facts that help set the record straight.
Debt Collection Is Expensive
Most reputable debt collectors only get paid if they collect. So, while you will not recoup the full amount of money owed to you, you’ll get more than if you hadn’t hired a debt collector. Don’t forget that pursuing debt yourself also costs time and money. Unless you have trained collectors on staff, you will probably spend more trying to reclaim the money on your own.
If No One Owes You, You Don’t Need a Debt Collector
The main job of a debt collector is to collect on money owed. But, debt collectors can also help advise you on ways to avoid bad debt. Although most business owners consult with lawyers on things like credit applications and contracts, a debt collector has a different point of view, which can be helpful.
Debt Collectors Are the Same as Accounts Receivable
Many companies have their accounts receivable departments. The specialists in those departments are great at invoicing and collecting on invoices. They may even have some special skills and systems set up to pursue debt that isn’t paid on time. But, debt collectors have additional tools at their disposal. For example, some debt collectors can view credit reports in real-time to best time collection calls. Debt collectors may be able to use a variety of phone numbers to get around people avoiding their calls. Debt collectors also have the advantage of time and experience. The debt collector doesn’t have to worry about marketing and product development. He or she has one job for you. An experienced debt collector knows when it’s time to make a repayment deal with a client, and the best deal to make.
You Don’t Need a Debt Collector – You Can Sue
You can indeed sue nonpaying clients for breach of contract. But, going to court should be a last resort. Going to court takes a lot of time and money. Many federal and state courts are currently backed up, meaning you could wait for years to get your case heard. A court judgment also does not make money magically appear. Just because you win a court case, doesn’t mean you won’t still have to negotiate with the debtor to ensure payment. On top of that, if you do not have well-written contracts and terms of service and a good paper trail of your attempts to collect on the debt, you may have difficulty finding a lawyer to take your case.
You Should Wait as Long as Possible Before Hiring a Debt Collector
The longer a bill is owed, the less likely you are to be able to collect on it. Once an account is 90 days late, there’s already a 26% chance that it will never get paid. At seven months overdue, there’s only a 50% chance that you will get paid. Hiring a debt collector sooner rather than later can save you money. Untrained business owners often agree to deals or compromises on debt while trying to collect. Once you decide to waive late fees or reduce the amount of the invoice, it’s tough for a debt collector to reverse those decisions. By waiting to send an invoice to debt collection, you may lose money.
If a company that owes you money is in danger of closing or filing for bankruptcy, it is even more important that you try to be repaid as soon as possible. Once a business declares bankruptcy, there are strict rules about which debts get paid first. A trained debt collector can help you strike a deal before the client declares bankruptcy or goes out of business.
Dean Kaplan is president of The Kaplan Group, a commercial collection agency specializing in large claims and international transactions. He has 35 years of manufacturing, international business leadership and customer service experience. Today, he provides business planning, training and consultation to a variety of global companies.