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Monday, December 14, 2009
Monday, November 9, 2009
Collection Agency Fee Provision - Do Your Agreements Include This?
Chances are the agreements you have your customers sign have a provision that states if the account is turned over to an attorney the attorneys fees will be added to the principal. This is very common on agreements.
However, do your agreements also state that any and all collection fees (that would include collection agency fees) will be added to the principal if the account is referred to a collection agency?
If your agreements don't include this provision, a collection agency can't pursue those fees!
If you have questions about this, please contact us or consult with your attorney.
http://www.mediareceivablemangement.com/
305 341 3434
However, do your agreements also state that any and all collection fees (that would include collection agency fees) will be added to the principal if the account is referred to a collection agency?
If your agreements don't include this provision, a collection agency can't pursue those fees!
If you have questions about this, please contact us or consult with your attorney.
http://www.mediareceivablemangement.com/
305 341 3434
Why You Shouldn't Turn Over "Out of Business" Accounts to a Collection Agency
It's very frustrating to have one of your customers go out of business!
You might think it's worth a try turning it over to a collection agency - especially one that works on a contingency basis as it won't cost you anything.
However, if you don't have a good point of contact with the debtor, and it appears that they are, in fact, out of business, it doesn't make sense to refer the account to a collection agency. Once a business ceases operations there really is nothing any agency (or attorney for that matter) can do. If you have personal guarantees from the businesses' principals and contact information for them separate from the business (home address, social security number, etc.), a collection agency can try to find them and collect from them personally. In the absence of this, there is nothing for a third party to pursue.
Remember ... Don't wait until you have a serious collection problem. The best way to protect your profits is the early identification and referral of doubtful accounts!
http://www.mediareceivablemanagement.com/
You might think it's worth a try turning it over to a collection agency - especially one that works on a contingency basis as it won't cost you anything.
However, if you don't have a good point of contact with the debtor, and it appears that they are, in fact, out of business, it doesn't make sense to refer the account to a collection agency. Once a business ceases operations there really is nothing any agency (or attorney for that matter) can do. If you have personal guarantees from the businesses' principals and contact information for them separate from the business (home address, social security number, etc.), a collection agency can try to find them and collect from them personally. In the absence of this, there is nothing for a third party to pursue.
Remember ... Don't wait until you have a serious collection problem. The best way to protect your profits is the early identification and referral of doubtful accounts!
http://www.mediareceivablemanagement.com/
Friday, November 6, 2009
Managing Your Total Collection Cost
"If you want me to lower bad debt, give me more people!" is a cry credit and collection managers make often--and that cry is usually countered with "We don't have the budget for more staff." Salaries most often are the largest portion of your overhead expense, so it stands to reason that your bosses want to keep this number as low as possible. So how do you make the argument for more staff? Well, there actually is a formula you can use--it's called an account/collector ratio.
The "squeaky wheel" theory would dictate that the more often a debtor company is contacted, the more likely it is to pay. While this is true to a point, you don't want to waste resources contacting a long-term advertiser with a $1000 balance at the expense of not contacting a new advertiser with a $10,000 balance. In other words, not all accounts are created equally. I know you know this, but how do you manage it?
The best way I've found is to separate accounts according to risk. The factors to consider are length of relationship, payment history, balance, days delinquent and business category (e.g. national retail chain vs. local restaurant). In simpler systems without smart queuing, even sorting by days delinquent and balance is preferable to treating all accounts equally.
Once your accounts are sorted by risk, a follow-up strategy needs to be applied to each risk group to determine the frequency with which a collector should review each account. An account on which a promise to pay is obtained is reviewed less frequently than a "no-contact" account. High-balance accounts approaching write-off need to be reviewed every day. The follow-up strategy, contact rate (the percentage of accounts on which a collector speaks with the person responsible to issue payment) and collector productivity are the factors that will determine your account/collector ratio. Account volume will determine the optimal number of collectors you need to staff.
EXAMPLE: STAFFING FORMULA
Age Range: 45-90 days
Number of Accounts: 900
Contact %: 70
Reviews per month based on a follow-up of every 14 days (2 per month): 1260
No-contact %: 30
Reviews per month based on a follow-up of every 7 days (4 per month): 1080
Total reviews per month: 2340
Average # of accounts reviewed per day per collector: 80
# of work days per month: 21
Total # of reviews per month per collector (80 x 21): 1680
Total collectors needed: 1.4 full time employees (2340/1680)
Account per collector ratio: 643 (900/1.4)
This formula can be applied to each risk group to determine the number of collectors needed for each, and for the total number of collectors. Once you have the account/collector ratio for each risk group, and you know the average number of accounts for each risk group, it's easy to determine your staffing requirements.
To make the argument for additional staff or resources, you need to know what your current account/collector ratio is vs. the account/collector ratio that will result in lower bad debt.
An example: Earlier this year, a client of ours acquired a new magazine that had a bad debt rate of 5.5%. The annual revenue is $8.6 million so the bad debt dollars amounts to $473,000. They had one collector, with no manager, assigned to this magazine--clearly understaffed. The account/collector ratio was about 1200. They chose to outsource this title to Media Receivable Management. Once we applied our resources, based on a solid account/collector ratio, to this magazine, the bad debt rate came down to 3% (so far). Even though the incremental collection expense is about $125,000, the net savings to our client has amounted to $90,000.
The message: additional resources needed to manage your total collection cost (including bad debt expense) can be justified if you use a scientific, mathematical approach.
By John K. Serafine, President
Media Receivable Management, Inc.
www.mediareceivablemanagement.com
The "squeaky wheel" theory would dictate that the more often a debtor company is contacted, the more likely it is to pay. While this is true to a point, you don't want to waste resources contacting a long-term advertiser with a $1000 balance at the expense of not contacting a new advertiser with a $10,000 balance. In other words, not all accounts are created equally. I know you know this, but how do you manage it?
The best way I've found is to separate accounts according to risk. The factors to consider are length of relationship, payment history, balance, days delinquent and business category (e.g. national retail chain vs. local restaurant). In simpler systems without smart queuing, even sorting by days delinquent and balance is preferable to treating all accounts equally.
Once your accounts are sorted by risk, a follow-up strategy needs to be applied to each risk group to determine the frequency with which a collector should review each account. An account on which a promise to pay is obtained is reviewed less frequently than a "no-contact" account. High-balance accounts approaching write-off need to be reviewed every day. The follow-up strategy, contact rate (the percentage of accounts on which a collector speaks with the person responsible to issue payment) and collector productivity are the factors that will determine your account/collector ratio. Account volume will determine the optimal number of collectors you need to staff.
EXAMPLE: STAFFING FORMULA
Age Range: 45-90 days
Number of Accounts: 900
Contact %: 70
Reviews per month based on a follow-up of every 14 days (2 per month): 1260
No-contact %: 30
Reviews per month based on a follow-up of every 7 days (4 per month): 1080
Total reviews per month: 2340
Average # of accounts reviewed per day per collector: 80
# of work days per month: 21
Total # of reviews per month per collector (80 x 21): 1680
Total collectors needed: 1.4 full time employees (2340/1680)
Account per collector ratio: 643 (900/1.4)
This formula can be applied to each risk group to determine the number of collectors needed for each, and for the total number of collectors. Once you have the account/collector ratio for each risk group, and you know the average number of accounts for each risk group, it's easy to determine your staffing requirements.
To make the argument for additional staff or resources, you need to know what your current account/collector ratio is vs. the account/collector ratio that will result in lower bad debt.
An example: Earlier this year, a client of ours acquired a new magazine that had a bad debt rate of 5.5%. The annual revenue is $8.6 million so the bad debt dollars amounts to $473,000. They had one collector, with no manager, assigned to this magazine--clearly understaffed. The account/collector ratio was about 1200. They chose to outsource this title to Media Receivable Management. Once we applied our resources, based on a solid account/collector ratio, to this magazine, the bad debt rate came down to 3% (so far). Even though the incremental collection expense is about $125,000, the net savings to our client has amounted to $90,000.
The message: additional resources needed to manage your total collection cost (including bad debt expense) can be justified if you use a scientific, mathematical approach.
By John K. Serafine, President
Media Receivable Management, Inc.
www.mediareceivablemanagement.com
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