Business to Business Debt Collections and You

Business to Business Debt Collections and You

When people think of an account going into collections, the first thing to come to mind is usually debt collection agencies calling individuals to collect on either a long overdue payment for some purchase or collecting on overdue bills for services. While individual collections are the most well-known form of collections, there is also commercial collections, or collections involving the debts of sale of services or goods between businesses. Since businesses, in general, tend to have more available capital to work with than the average individual, the amounts owed can reach fairly sizable sums. With such large sums on the line, many business owners opt to retain a collections attorney rather than handling things internally or hiring an agency.

What’s the Difference?
While debt collection agencies and attorneys serve a similar function, helping you pursue debtors and collect back the owed amounts, there is one very important distinction between the two. Collection attorneys can take legal action against debtors, such as taking them to small claims court or filing suit against them, while agencies can not. Most businesses start off using an agency and then retain an attorney as a last resort, but if you know your client has no interest in paying, you might be better off retaining an attorney from the start.

The Benefits
There are many benefits to using a collection attorney to handle your collections process. The first and most commonly overlooked benefit is that it frees up time and resources you would normally be expending to pursue the debts yourself, which you can now allocate to other areas to help your business thrive while attorney takes care of the nitty-gritty part of the collections process for you. Collection attorneys not only have a plethora of resources available for helping to collect any owed capital, but also have an intimate knowledge of the laws and regulations surrounding the collections process. This knowledge is critical in making sure the collections process is handled properly, as any collections that break state-mandated regulations may be forfeit, meaning you’re still out the money with no recourse in getting it back.

When Should an Account go into Collections?
Not every outstanding bill needs to be sent into collections. It goes without saying that a bill that is overdue by a day or two is a very poor candidate for collections, but there are other outstanding debts that might be a bit harder to evaluate. You should always evaluate the individual circumstances behind each outstanding bill before sending it off to collections. Sending a bill into collections prematurely or without much thought can harm your relationship with clients and business partners. No one likes getting a call notifying them an account has been put in for collections, so use collection agencies as a last resort. A few things to consider before sending an account into collections are:

-The age of an invoice:
The older the invoice, the harder it will be to collect. If the delinquent account is fairly recent, try following up on your own to settle the account first before jumping to collections.

-Have you followed up?
Running a business can be a hectic process, and many times things simply slip through the cracks. If you haven’t sent any follow-up invoices or reminders, try sending a friendly reminder letter to bring that outstanding payment back to their attention.

-Is there still contact?
One of the biggest red flags for if a client is planning on simply not paying an invoice is if they suddenly vanish without a trace. If your client has remained in contact despite an outstanding payment, there could be a valid reason they’ve yet to pay. Try discussing things with them to get to the bottom of why they haven’t paid, and work with them on how best to handle the collection of the debt.

-Are there any other factors you may have missed?
There are plenty of reasons a company may be delayed in paying an invoice. Perhaps they are waiting for payments to come in themselves, or the capital is held up in investments or some other non-liquid form and they simply need to convert it into something they can actually transfer, for example selling stock investments to get the capital needed to make a payment. This is another reason we’re finding out the why, when necessary, can save you a lot of time before deciding to send an account into collections.

Why Hire an Attorney Instead of an Agency?
While attorneys have a lot more power in terms of collections potential due to being able to file a suit against a debtor and have a much higher collections rate than collection agencies, some businesses may still think hiring a collection agency to start is the best move. A series of recent investigations by various government agencies such as the FBI and FTC have revealed that many debt collection agencies use improper, illegal, and unethical debt collection methods on a regular basis. These offenses include but are not limited to; improper threats, falsely identifying themselves as law enforcement, or falsely identifying themselves as working for lawyers, harassment, falsely accuse customers of owing debts, make unauthorized withdrawals from consumer accounts, and revealing confidential information to third parties. Since attorneys tend to be held to a much higher ethical standard and have more risk to their credibility and attorney status should they break any ethical or legal code involved in collections, there’s a greater chance they’ll do things properly and not risk losing your collection through illegal collections methods.

Still Can’t Collect?
If you have no luck collecting even with the help of a collections attorney, you may want to look into filing in small claims court. Usually, the threat of immediate legal action is enough to convince debtors to ‘voluntarily’ settle the suit, as many don’t have a legitimate reason as to why they have not paid off their debt. In some cases though, a judgment can be filed against a debtor if they refuse to pay and do not show up in court or have representation speak on their behalf in court.