Service Area: Collection Services

Here’s What Wikipedia Can’t Tell You About Collections

Posted on March 15, 2016 by - Credit Risk Management, Mechanic's Liens & Bond Claims, UCC Financing Statements

Here’s What Wikipedia Can’t Tell You About the Collection of Past Due Accounts

It seems people recognize that Wikipedia isn’t the most reliable resource for information (not like the ol’ “trusty”, 50 lb, Encyclopedia Britannica – don’t laugh, I have an entire set collecting dust on my bookshelf).

Unfortunately, credit professionals still use Wikipedia to determine mechanic’s lien/bond claim deadlines, the steps for filing UCCs and even for best practices on collecting past due receivables.

“Collection”: A Thoroughbred Racehorse?

I searched the term “collections” in Wikipedia and quickly found various results which included cash collection, artwork, abstract data, horses (including an “Irish bred, Hong Kong based Thoroughbred racehorse”) and various books/novels.

I narrowed my search and the results provided definitions for “past due”, “outstanding”, “overdue” invoices, and “see also: accounts receivable”.

The Wikipedia search of “accounts receivable” explains what accounts receivable is, what payment terms are and bookkeeping information.

It’s an endless click-trail of key terms. Shew! There is a lot of info, such as debt collection began in the summer of 3000 BC (really?!). Unfortunately, I’m not seeing the one thing I was here to find: a how-to for collections.

And Then It Hits Me, Like a Bookshelf Full of Encyclopedias

Wikipedia can tell me the “what”, meaning it can provide me general definitions and the origins of words/topics, but it can’t tell me “how”. Wikipedia can’t tell me how to collect past due receivables.

Wiki-Can’t-How. Fortunately, I work with B2B collections experts, so I don’t have to go far to learn more about HOW to manage the collection process and collect past due receivables.

Here’s Some “Hows”

  • Monitor open invoices | Routinely review open invoices and as soon as an invoice is past due (e.g. If you bill on 30 day terms, day 31) contact your customer and inquire on the invoice.
  • Try multiple mediums | Phone calls, emails, demand letters etc. & make sure you keep track of your communications – good record keeping is important!
  • Pay attention to cues | Social cues & non-verbal cues are frequently early warning signs that an invoice (or customer) is going to be an issue. When people stop communicating they are sending a clear signal “I can’t/won’t pay the invoice, and maybe if I ignore you, you will go away”.
  • Check status | Note changes with your customer’s business such as a disconnected phone number, undeliverable mail & email, and changes in their corporate status with the Secretary of State.
  • Review credit | Credit reports can provide a wealth of information, especially for payment history, DBT changes, recent collection placements or judgments.
  • Cut them off | If you have invoices that a customer isn’t paying, stop extending them additional credit. Debt is like a beast and if you continue to feed it, it will gobble up every last bit and give you nothing in return.
  • Know when to let it go | And by “let it go” I don’t mean toss the invoice into the bad-debt-write-off-pile. “Let it go” from your desk and move it to the desk of a specialized collection agency. Collection agencies are trained and experienced, not to mention, a third party is sometimes more effective simply because they are a third party – removed from the situation.
  • Don’t wait | Whatever steps you take, make sure you don’t let that receivable age for too long. It is a well-known fact, and long studied trend, that the longer an account remains past due the harder it becomes to collect.

Per the results from a survey hosted by the Commercial Law League of America “…the probability of full collection on a delinquent account drops dramatically with the length of delinquency… even after only three months, the probability of collecting a delinquent account drops to 68.6%. After six months, collectability drops to 52.1%. And after one year, the probability of ever collecting a delinquent account drops to 9.3%.”

What Did We Learn?

Wikipedia may tell you “what” a collection is, but it can’t tell you “how” to manage the collection of past due accounts. Need the “hows” of credit management, you should let NCS know! Million-dollar idea: we could change our name to NCS-opedia…

Can Supporting Documentation Make or Break Your Claim?

Posted on November 10, 2015 by - Credit Risk Management

Can Supporting Documentation Make or Break Your Claim? Short Answer: Yes!

The words rumbled like daunting thunder from the mouth of a tall, lanky and otherwise nondescript bank branch manager. Although he was referring to fraudulent charges on an account, the same adage applies to those who secure credit through UCCs, mechanic’s liens or pursue collections.

I can’t say it with quite the same Armageddon-like-bellow, but I’ll strain to be tip-toes-tall and use the lowest voice I can muster, to repeat “supporting documents can make or break a claim”. Because it’s worth repeating, if for nothing more than a bit of a giggle while I try not to lose my balance.

Which documents should be included?

Regardless of whether you are pursuing a UCC, mechanic’s lien or collection, these are documents you should always have handy:

  • A copy of the Contract or Agreement (including Security Agreement)
  • A copy of the Purchase Order(s)

Short list huh? Well, hang tight, we’re not done. Let’s delve a bit deeper, and uncover the important documentation based on service type.

Filing a Mechanic’s Lien?

If you are securing rights through the mechanic’s lien process, the list of necessary documentation can fluctuate – meaning, you tend to need more supporting documentation and information for a mechanic’s lien than you would for a preliminary notice. In an ideal credit-management-world, you would want to have ALL of this documentation (remember, ideal, not required):

  • Proof(s) of Delivery
  • Itemized Statement
  • Invoices
  • Payment Bond
  • Notice of Commencement
  • Notice of Completion
  • Joint Check Agreement
  • Personal Guarantee
  • Lien Waivers

Generally, when serving a preliminary notice, you would want to include the information that will ensure the proper parties are served with a copy of the notice. This would include knowing who is in the contractual chain (owner, GC, debtor, surety, lender etc.) and can often be found on job information sheets, contracts and Notices of Commencement.

Once you are at the point where you are unpaid and disputes arise forcing you to pursue a mechanic’s lien or even collections, that’s when you will want to refer to open invoices, statement of account, joint check agreements, personal guarantees etc.  Which leads to a great segue...

Pursuing Collections?

We have covered this before, so I won’t rehash it too much. The best advice is to provide as much information as you can. When it comes to pursuing collections or suit, it’s almost always better to have more documentation than not enough documentation (kind of like cake, more cake is better than less cake).  Aside from the “usual suspects” spelled out above, be sure to include copies of correspondence, copies of returned/NSF checks and copies of credit reports.

Filing a UCC?

If you are filing a UCC, it’s a bit less about the backup documentation, and more about ensuring all necessary information is incorporated into your Security Agreement. In the event you are pursuing collections and intend to use your UCC filing as leverage, you will want to ensure you provide the collections agency with a recorded copy of the UCC filing, results from a recent UCC search, a description of the collateral and the amount you are owed.

Supporting Documentation

Maintaining documentation is important – not only for proceeding with secured transactions, but simply as a good business practice.

Hip Hop and Credit Management

Posted on June 22, 2015 by - Credit Risk Management

Hip Hop & Credit Management: Advice to Credit Professionals in 30 Seconds

Several years ago, I was given the opportunity to view a documentary, hosted by its creator, The Hip Hop Project. The documentary centers on a formerly homeless teenager who wants to inspire and empower youth. There were many poignant and salient moments, but one question resonated throughout the film “If you had the whole world listening, what would you have to say?”

“That’s great Kristin – touching story, really – but what on earth does this have to do with credit management?!” I’m so glad you asked!

A friend of mine recently took a position in the credit department at a large manufacturer and she asked me:

“See, my boss wants me to come up with a plan on how they can improve the margins without taking too much risk. But they already have a process and I’m not really sure that there is anything else I can bring to the table. Got any advice?”

I sat across from her, silently – any time I’m problem solving, I tend to ask myself “If I had 30 seconds to convey my thoughts to a silent & listening world, what would I say?” (I have to impose a time limit on myself, otherwise I’d never snap back to reality.) She interrupted my 30 seconds to tell me that most of their customers have been customers forever, though if they have a new customer they pull a credit report, sometimes they ask for a letter of credit, sometimes they require payment up front and other times they simply invoice and hope the invoice is paid within the allotted 45 days.

My friend interrupted my 30 seconds, but between her question and the documentary question, I decided to ask a few of my NCS colleagues

“If you had 30 seconds to give a credit professional advice on reducing risk, what would you say?”

Here’s what they had to say – I hope you can take a few minutes to “listen.”

Know Your Customer

“Know your customer! Knowing their history before contracting with your customer, means you have the opportunity to mitigate loss. You have the opportunity to save valuable time and money; be proactive not reactive. Take advantage of project and party monitoring services. With services like LienFinder, Corporate Monitoring and credit reporting, you can set email alerts to advise you of any project or party activity. Wouldn’t you want to know of changes as soon as possible? I would think so!” – Mary Cowan, NCS President

Be Proactive

“If you would like to reduce your risk, secure your receivables. Being proactive in this regard can help to prevent major losses.  Serve preliminary notices on all projects over a certain dollar limit so that if there are payment problems by anyone within the contractual chain, or if anyone files bankruptcy, you will have the right to make a claim against a payment bond or to file a mechanic’s lien.  Preliminary notices, liens and bond claims provide great leverage when seeking payment.  Follow the statutory requirements, and carefully track your deadlines to ensure that your rights are maintained.  And, if payment is not forthcoming, take action (filing a lien or a bond claim) sooner rather than later.  Often, collectability is dependent on the funds being held by the owner, or someone else within the contractual chain, so the best practice is to secure your rights as soon as possible.” – Nancy Kennerly, Executive Director

Secure More, Sell More

“Reducing risk needs to be balanced with the impact to sales and cost. Secured transactions are an economical way to extend trade credit while at the same time improving your standing to that of a secured creditor. The benefits are numerous with the greatest benefit being an improvement to cash flow. They also will provide you the ability to say “yes” to a marginal account that perhaps would not have received credit or as much credit in the past. The sales team should welcome this new tool to help them sell more” – Jerry Bailey, Executive Education & Sales Manager

Security Creates Leverage

“USE PROTECTION! Seriously, it is important that creditors are proactive in protecting themselves.  How do they protect themselves? Ask the right questions— know your debtor, who they are, their credit history and financial stability and what it means to YOU.  Check this information frequently!  Things change fast. Get yourself secured & create leverage.  Take the time to know what you need to do—or partner with a credit professional who does.  Missing a notice or incorrectly identifying a contractual chain member can make the difference between secured and unsecured.  Know if UCC’s, liens/bonds, personal guarantees, promissory notes, joint check agreements are available and applicable—the more leverage, the better!  The more entities on the hook to pay you, the better! Documents!  Signed contracts and/or purchase orders are a must!  Don’t get sloppy or lazy or blame it on your “Sales Reps”.  Take the time to get the proper paperwork in order NOW.  You never know when you will need it.  And then, it will be too late!  And you will lose.” – Amy Poje-Marsh, Director of Operations

Are you noticing a trend? Be proactive, know your customer, secure your receivables.

So, if you had 30 seconds to give a credit professional advice on reducing risk, what would you say?

Oh, one other thing… I couldn’t help but recognize a similarity with The Hip Hop Project’s philosophy “…we empower them [youth] with the knowledge, tools and opportunity…” and the NCS philosophy “…empowers credit professionals by providing exceptional education, resources and innovative services…”

9 Documents Every Collector Should Have

Posted on June 16, 2015 by - Credit Risk Management

The Top 9 Documents Every Collector Should Have

I once had a history teacher who constantly preached “The pencil remembers what the mind forgets…” It was his delicate way of reminding us to quit blankly staring at him and grab a pencil and paper for note taking. Although few of us use pencils and notebooks in the digital age, the phrase still rings true because it stresses the importance of having everything in writing.

For the purposes of today’s topic, let’s treat “writing” as “documentation.” If you find yourself faced with the task of sending an account to collections, it’s important to provide the collector with all pertinent backup documentation. Collecting a past due receivable can be difficult, but if your collector has the necessary documentation, debt recovery becomes easier.

Why Should I Have Documents?

Yes, it’s worth repeating: “Collecting a past due receivable can be difficult, but if your collector has the necessary documentation, debt recovery becomes easier.” Providing the documentation at the time the collection is placed facilitates communication with your debtor regarding the past due receivable and it also improves efficiency.

Efficiency? Why Would I Care about Efficiency?

Efficiency matters on many levels! For the sake of simplicity – if something is more efficient, it tends to be faster. If your collection agency has the necessary information, they are able to better prepare and preparation means communication with your debtor will be more effective, leading to a faster recovery.

For example, when I’m going to cook, I make sure I have my recipe, the ingredients and the necessary utensils in order before I start cooking. I don’t want to run back and forth between the refrigerator, cabinets & stove because I end up wasting time and inevitably making a mistake (or in my case, burn the food to the point that even the dog won’t come near it).

Come to the proverbial kitchen with everything in hand – make the most of your time & money.

What Documentation Should I Include with a Collection Placement?

Here are some documents our collectors find to be beneficial:

  1. A copy of the Contract or Agreement
  2. A copy of the Credit Application
  3. Copies of Invoices and Statement of Account
  4. Copies of the Proof of Delivery
  5. A copy of the Personal Guarantee
  6. Your customer’s Trade References, including bank name and account number, and copies of any Returned/NSF Check(s)
  7. Copies of Correspondence & Notes. In this bundle, make sure you have emails, letters (demand letters, payment requests and notices), and documented phone conversations (i.e. “Spoke with Mr. Smith 5/5 @ 2:00 pm and he advised payment will be made 5/31″).
  8. Corporate Certificate: this should include your debtor’s legal identity, including whether it is a corporation, partnership or proprietorship
  9. Copies of a Credit Report(s)

Also make sure you provide your collector with contact information for your debtor. This should include the debtor’s full name and physical address as well as the names, addresses and phone numbers for the company owners.

Need to free up your time? NCS can handle your collections – contact us today!

The Carmack Amendment

Posted on May 26, 2015 by - Credit Risk Management

The Carmack Amendment: What Is It? Why Does It Matter?

Today’s contribution is authored by Ms. Michelle Gerred, Esq., NCS Notice & Mechanic’s Lien and Collection Services

Do you ship goods to your debtor? Are you a material supplier shipping materials to a jobsite? If you answered “yes” to either of these questions, then you may want to take a moment to learn more about the Carmack Amendment.

A Little History

The Carmack Amendment (not to be confused with Carmex, the lip balm) was enacted in 1906 after congress enacted the Interstate Commerce Act in 1887. Essentially the Interstate Commerce Act was an attempt to regulate interstate transportation and its subsequent amendment, Carmack, was the adoption of uniform guidelines used to determine who is liable for goods that are damaged during transit.

Why It Matters

The Carmack Amendment only covers actual damage to the shipped goods and does not provide protection against “consequential damages” or “liquidated damages” caused by the carrier.

What are consequential damages? They are damages that are the consequence of the issue, such as delay.

If the carrier damages your goods, which requires new goods to be manufactured or shipped, and the goods don’t make it to their destination on time, the carrier won’t be at fault – even though the carrier essentially triggered a domino effect when it damaged the shipment. Therefore if you are back-charged for the delay or liquidated damages, you will not be able to recover against carrier for those consequential damages, under the Carmack Amendment.

All Is Not Lost

However, some recent cases have offered hope! In Am. Natl Fire Ins. Co. v. Yellow Freight Sys., 325 F.3d 924, 931 (7th Cir. 2003) the court determined some damages, including damages for delay, lost profits, and all reasonably foreseeable consequential damages, could be sought against the carrier. The catch? Only if those damages were foreseeable.

In order to proceed against the carrier for consequential damages, you must show that the carrier had actual notice of the special circumstances that could put them on the hook for those types of damages. (see Contempo Metal Furniture Co of California v East Texas Motor Freight Lines, 661 F.2d at 765) This means you need to include a delay damage clause in your contract with the trucking company.

What If I Use a Transportation Broker, Can I Recover from Them?

Unfortunately, no. Brokers enjoy the same protection under the amendment. In fact, under the amendment, instead of going against the broker, your only recourse is to go against the transporter for the actual damage done to the product.

But Wait, There’s More

Be careful and ask about rates and limiting liability when contracting. A carrier can limit its liability for any damages by using an established rate or tariff.   When looking at limiting the carrier’s liability the courts look to see if the carrier:

  • obtained the shipper’s agreement for his choice of liability,
  • gave the shipper a reasonable opportunity to choose between two or more levels of liability, and
  • issued a receipt or bill of lading prior to moving the shipment.

Therefore, you must look at your documentation closely when using a carrier; the fact is the carrier could have a clause within the documents alerting you to an established rate limiting the carrier’s liability to a set dollar amount.

Remember the document does not necessarily have to say what the limitation is, like an insurance policy does, it just has to say there is a limitation.  It is up to the shipper to ask for specifics or to negotiate for a higher rate, especially when the possibility of consequential damages comes into play.  Needless to say, liability limited in this way is the most highly litigated issue under the amendment.

As always, when in doubt, seek a legal opinion!

Demand Letters and UCC Filings

Posted on April 15, 2015 by - Credit Risk Management, UCC Financing Statements

What You Should Know about Demand Letters & UCC Filings

The demand letter is often overlooked as a collection tool for UCC filers, but it can be a cost effective alternative to the processes of repossession or litigation. As we’ve mentioned before, demand letters are not kind, gentle, love notes. Demand letters are typically harshly worded, authoritative notifications – after all, the definition of demand is “…an insistent and peremptory request, made as if by right.” which loosely translates to mean “It’s mine! You have it, pay me or give it back.”

What Should I Include in a Demand Letter?

Always remember to be factual & succinct. When you have filed a UCC, you should use that filing as leverage within your demand letter. Make sure to include the following information in the demand:

  • Date of the demand
  • Your company’s name and contact information
  • Your debtor’s name and contact information
  • The date the Security Agreement was executed
  • The UCC filing number and the date of the filing
  • Reference to the Collateral Description
  • Reference to the Default Terms
  • The amount of the debt
  • The due date of the debt
  • How the debt should be paid
  • The consequence of not paying the debt

You are probably wondering “How on earth can I be succinct when I have to include ALL of this information?!” And the answer is to remember to stick to the facts, no additional commentary or emotion need be in the demand, just the facts.

Who Should Receive a Copy of the Demand Letter?

The demand should be served upon your debtor and it is recommended you include a copy of the Security Agreement and a copy of the UCC filing.

There’s a Consequence for Every Action

Always include a description of the consequences for not paying the debt.  It’s important to include realistic ramification: “…If payment is not received, we may pursue all available legal remedies available under the Ohio Uniform Commercial Code.”

Can I Send a Demand Letter even if I Didn’t File a UCC?

Yes, absolutely YES! There are no prerequisites for sending a demand letter, other than the outstanding debt.

When Should I Send a Demand Letter?

You may find a demand letter to be most beneficial before attempting to repossess your goods or before proceeding with enforcement of the UCC filing under the Uniform Commercial Code.

 Looking for an example of a general demand letter? Download one for free

Demand Letters and Mechanic’s Liens

Posted on April 13, 2015 by - Credit Risk Management

What You Should Know about Demand Letters and Mechanic’s Liens

A demand letter is a strongly worded request for payment, most often served upon your customer, advising legal action may be taken if payment is not received within a specified time period.  A demand letter is not intended to be “a-walk-in-the-park-chasing-rainbows-and-butterflies.”

What should I include in a demand letter?

In order for a demand letter to be successful, it should contain factual information and be succinct/to the point.

  • Date of the demand
  • Your company’s name and contact information
  • Your debtor’s name and contact information
  • A reference to the debt (i.e. provide the project name or purchase order number)
  • The amount of the debt
  • The due date of the debt
  • How the debt should be paid
  • The consequence of not paying the debt

Who should receive a copy of the demand letter?

The demand should be served upon your debtor, but it is recommended you also send a copy of the demand to any party that may contribute to you being paid; this could include the project owner, project manager, prime contractor, subcontractor, lender and surety. The more people you notify, the greater the influence on the party not paying you!

The Consequences of Not Paying

Any time you send a demand for payment, you need to ensure there is a clear consequence for failing to remit payment. You may be thinking “A consequence? Why? They should just pay me!” See, the party(s) involved need to know there is a consequence for not paying you – sort of like when a child goes to touch a hot stove, we warn them “Don’t touch that or you will get burned and it will hurt!” – getting burned and the significant pain are the consequences of touching the stove. (Just to be clear, I’m not condoning “bringing pain” to your customer, though I now hear a voice saying “You want I should break your knee caps”…)

Be specific as to a realistic ramification for not paying:

“…If payment is not received, we may pursue all available legal remedies against you, including, but not limited to, filing a lien.”

Can I send a demand letter if I didn’t serve a notice?

Yes, absolutely YES! There are no prerequisites for sending a demand letter, other than the outstanding debt. Just remember to word the consequence accordingly.

When would I send a demand letter?

Here are a few instances where a demand letter may be the most useful and cost effective tool for recovering an outstanding debt:

  • Before proceeding with a mechanic’s lien or bond claim
  • Before proceeding with suit to enforce a mechanic’s lien or bond claim
  • Before placing an account with a collection agency

Remember: demand letters can expedite payment, allow you to maintain control of your collection process and save you money.

Collectability of an Unsecured Collection

Posted on February 26, 2015 by - Credit Risk Management

Have you ever wondered “Is my unsecured collection collectable?”

“Is this past due, unsecured account even collectable?” It’s a common question in the minds of credit professionals. I wish I had a Magic 8 Ball that would always say “YES! Yes, it IS collectable!” with every anxious shake, unfortunately the responses in my Magic 8 Ball are varied and there is no guarantee it will land on “YES!” every time. When determining the collectability of an account, there are several factors that should be taken into consideration.

I mean, as fun & entertaining as the Magic 8 Ball can be, I feel I should remind you that it’s not the best way to determine the collectability of a past due account.

Yes, unsecured collections can be more difficult to collect than secured collections (i.e. past due accounts secured by a UCC filing, mechanic’s lien or bond claim), though you shouldn’t abandon all hope when an unsecured past due receivable hits your desk. When you are evaluating the collectability of account, specifically one that is unsecured, we recommend you use the following questions as a guide to help you determine the likelihood of a successful collection.

How Old Is the Receivable?

How many days past due is this account? 30? 90? 180? It’s no secret: the longer an account remains unpaid the harder it becomes to collect. In fact, studies indicate, after six months, the collectability of a past due account may be reduced to 52%.

Do You Have Documentation?

Do you have thorough, accurate and up-to-date documentation? This could include a contract or purchase order, current credit application, statement of account, open invoices, communications between you and your customer, bounced checks, the dates of received payments etc. The more documentation you have to support your claim, the more leverage it can provide to a collector, and more leverage may mean a more likely collection.

Also, obtaining personal guarantees provides additional leverage because it holds the principal(s) of the debtor corporation personally responsible for the debt.

Is Your Customer Still in Business?

Though it may seem fairly obvious, it’s worth noting. If your customer is no longer in operation, it does make the collection more difficult – not necessarily impossible. Take the time to confirm their corporate registration with the Secretary of State is active and in good standing or even drive by their place of business to see if it is vacant.

Does Your Customer Have Assets?

Knowing what, if any, assets your customer has may provide you additional leverage – for example, you may discover additional assets which could give more power to a settlement offer. If you want to know what assets are available, you may find some of these tools helpful:

Is Your Customer in other Collection Litigation, Judgments or Bankruptcy?

Understand that if your customer has several past due accounts with multiple creditors, it could reduce the likelihood of you recouping payment. Of course, if your customer has filed for bankruptcy protection, collection efforts must cease, though you can file a proof of claim with the courts.

C’Mon Magic 8 Ball!

There is no winning formula for determining the collectability of a past due receivable. Make sure you weigh the costs against the potential recovery – and make sure you take steps to secure future receivables!