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What to Do When You Hear “That Employee Did Not Have the Authority to Sign that Contract”

We hear it all the time: “We are not going to pay those invoices because the per­son who signed the con­tract didn’t have author­ity.” Many go on to say: “It says right in our By-laws that only an offi­cer can bind the company.”

This tells us sev­eral things:

• The debtor does not want to pay;
• The debtor is aware of this out­stand­ing payable;
• There is a good chance the debtor has the money to pay;
• The debtor either does not know the law or is pre­tend­ing to not know the law.

As a B2B col­lec­tion agency spe­cial­iz­ing in large claims, we know the law is on our side. But, our ini­tial response is not about the law, but to ask ques­tions to learn more. We want to know why they don’t want to pay, because that is the real prob­lem to solve.

We encounter this sit­u­a­tion most fre­quently with ser­vice con­tracts. Typ­i­cally the debtor signed up for a ser­vice of some type, such as adver­tis­ing, email list access, or an infor­ma­tion data­base. The most fre­quently expla­na­tions we hear as to why they don’t want to pay are:

• We never used the service;
• We didn’t get any ben­e­fit from the service;
• The ser­vice didn’t work the way we thought it would;
• Our busi­ness changed direc­tions and we didn’t need the service;
• Our rev­enue declined and we just can’t afford it.

Once we hear the expla­na­tion, we’ll ask a few more prob­ing ques­tions to fully under­stand the real issue we need to resolve. We also make sure to con­tact the client regard­ing the debtor’s actual usage of the ser­vice in case that infor­ma­tion will help us with the debt col­lec­tion effort.

Then we pivot to the issue of Appar­ent Author­ity, the excuse the debtor is try­ing to hide behind. Under the law of agency, an Agent (employee) is able to bind the Prin­ci­pal (com­pany) in a con­trac­tual rela­tion­ship with a third party (cus­tomer or ven­dor). Busi­ness could not func­tion effi­ciently if pur­chas­ing peo­ple could not order sup­plies and if sales peo­ple could not quote prices and com­plete sales. While these employ­ees may not be Agents of the com­pany able to exe­cute a con­tract to sell the entire com­pany to some­one, they typ­i­cally do have the author­ity to bind the com­pany to these daily transactions.

Under Appar­ent Author­ity, if it appears that the employee has author­ity then their actions bind the com­pany. This appear­ance can be accom­plished by pro­vid­ing the employee with com­pany iden­ti­fi­able forms or sta­tionery, a truck with a com­pany logo, or just hav­ing them work from the com­pany office. In all of these cases, it is rea­son­able for the other per­son to assume that this employee has author­ity to enter into the trans­ac­tion being dis­cussed and there­fore the thresh­old of Appar­ent Author­ity has been met. Our client’s con­tract with the debtor is legally binding.

Our col­lec­tion strat­egy will be dif­fer­ent if we are deal­ing with a sophis­ti­cated busi­ness per­son who is just try­ing to snow us with a bad excuse ver­sus an unso­phis­ti­cated busi­ness per­son who is just hop­ing this excuse will work. So, we typ­i­cally don’t just explain the con­cept of Appar­ent Author­ity, but ask a series of ques­tions to learn more about who we are deal­ing with while lead­ing the debtor to this conclusion.

For exam­ple: how many peo­ple work for the com­pany, who pur­chases the office sup­plies, who makes the sales, where do they work from, do they have busi­ness cards or access to com­pany sta­tionery, do they bind the com­pany to these trans­ac­tions? From there it is easy to explain Appar­ent Author­ity and vol­un­teer to send them links on the Inter­net where they can see for them­selves that this is a bind­ing con­tract. From that point for­ward, we refuse to dis­cuss that issue and get back to the real issue of col­lect­ing the money that is legally owed.

This Credit Application Language Can Help With Delinquent Accounts

Get­ting per­mis­sion to run per­sonal credit reports on B2B Credit Appli­ca­tions can lead to pay­ments dur­ing dif­fi­cult times

At our com­mer­cial col­lec­tion agency, we often encounter busi­ness own­ers who claim their company’s finan­cial con­di­tion is ter­ri­ble and they can’t pay any­thing or can make only small pay­ments. It is dif­fi­cult to ver­ify this infor­ma­tion on a pri­vate cor­po­ra­tion or LLC unless the debtor vol­un­tar­ily pro­vides com­pany finan­cial state­ments. But, if we have per­mis­sion to run a per­sonal credit report, the report can give us many clues as to how best to resolve the matter.

If the report shows the owner has a stel­lar credit rat­ing and large untapped bal­ances on credit cards, we can nego­ti­ate to get them to bor­row from the card issuer instead of our client. Even though they don’t have a legal oblig­a­tion to use per­sonal assets to pay com­pany debts, if they aren't will­ing to do this when we have this knowl­edge, it impacts the deci­sions we and our clients 

have to make dur­ing the debt col­lec­tion process.

Alter­na­tively, if their credit cards are maxed out or there are numer­ous credit issues, we know the debtor could be on the verge of not hav­ing the funds to keep things going. At that point we ask our clients to con­sider set­tling for a sig­nif­i­cant dis­count to at least get some­thing before it is too late or agree to small pay­ments if that is the best we can negotiate.

By law, we have to have writ­ten per­mis­sion to run a per­sonal credit report. That is often dif­fi­cult to get once an account has entered col­lec­tions. We do not have this writ­ten per­mis­sion on most of the claims we receive, which prompted me to start a dis­cus­sion on LinkedIn. I asked if any­one was includ­ing this per­mis­sion state­ment on their credit appli­ca­tions and sev­eral peo­ple responded in the affir­ma­tive. Many were kind enough to share spe­cific lan­guage for other pro­fes­sion­als to con­sider. Here are some examples:

• the under­signed con­sents to cred­i­tor obtain­ing a con­sumer credit report on the above listed owner, part­ner, offi­cer, or guar­an­tor of the cor­po­ra­tion, LLC, pro­pri­etor­ship, or part­ner­ship for the pur­pose of eval­u­at­ing their cred­it­wor­thi­ness in con­nec­tion with an appli­ca­tion for busi­ness credit;
• I give per­mis­sion to cred­i­tor to request and receive infor­ma­tion required to ver­ify depos­i­tory accounts and credit his­tory. This includes per­mis­sion to run per­sonal credit check reports …;
• I/We autho­rize Seller from time to time to obtain Busi­ness and Con­sumer Credit Reports on Cus­tomer or any prin­ci­pals listed above or to obtain credit and fund­ing infor­ma­tion from any other per­sons or entities.
• You may con­tact any bank and credit rat­ing bureaus to obtain credit information

Back when I owned a small man­u­fac­tur­ing com­pany, I would never give ven­dors a per­sonal guar­anty (I would just go to their com­pe­ti­tion if they wouldn't extend credit). But, I would have granted per­mis­sion to run a per­sonal credit report. A cou­ple decades later, I real­ize what an impor­tant tool this can be for a cred­i­tor if an account becomes problematic.

Mental Preparation for a Commercial Collection Call

Elite athletes mentally visualize technique and success to improve actual performance.   Our debt collectors use a very simple technique to get better results.  Studies have shown that visualization improves awareness, mood, confidence and outcome.  We've been using these techniques with dramatic success at The Kaplan Group for years.

In house collectors typically have 2 objectives, and they are not always completely compatible:

●     Maintain a positive relationship with customer leading to future profitable sales;

●     Get the money that is already owed and past due.

Early in the debt collection process, in house collectors clearly do not want to jeopardize the long-term relationship with a customer.   Customers (at least paying ones) are the lifeblood of the business. 

In the training programs we have done for clients' in-house collectors and with our own collectors, we focus on several mental factors:

●     Be in an Upbeat Mood

●     Have a Positive Attitude

●     Use a Calm Demeanor

●     Have a good Tone to your voice

●     Be Professional

●     Be Courteous

●     Listen and Understand

●     Be Caring and Compassionate

It is widely recognized that having an upbeat mood typically leads to greater success in everything we do.  Individuals tend to perform better when their mood is positive.  And just as important, this seems to influence other people as well.  So, if the collector's upbeat mood rubs off on the delinquent customer that can have a positive impact on the collection process.

With respect to positive attitude, we are referring to having the belief that the debt collection call will be successful.  Success can be collecting money, getting helpful information, or building the relationship as a step in the process of eventually collecting.  This positive attitude is similar to the visualization technique for sports - the more you believe, the more likely you will make it happen.

Clearly, when dealing with customers, being professional and courteous is very important for maintaining a relationship.  A calm demeanor and a good tone are equally as important.  A tone with an edge, or outright nastiness, can draw attention away from the main issue - resolving the past due balance.  It can also cause the customer to become defensive or angry, neither of which helps the collector achieve the goals of collecting or maintaining a long-term relationship.

The last couple of items are a bit trickier.  For decades collectors have been instructed to maintain control of the conversation and not allow it to get off-topic of simply getting the invoice paid.  Many collectors work for companies or collection agencies that expect a very large volume of calls to be completed on a daily basis.  So, there is a real balancing act between these criteria and taking the time to listen, understand, and express a level of empathy if that seems appropriate to achieve your goals. 

For in house collectors, developing some level of a personal relationship with the customer is an excellent way to establish and foster a long-term relationship between the companies.  This relationship can be used in a positive way to help collect when the customer runs into cash flow issues.  At our commercial collection agency, we know a key factor in our success is often related to taking whatever time is required to listen to debtors, understand their situation, and express some empathy if that is appropriate. 

We recognize that the debt collector's approach and tactics need to change over time if progress is not being made using the attitude described above.   The change in approach is just another tool in the collector’s arsenal.

Having an upbeat mood, maintaining a positive attitude, and talking with a good tone is not always easy, especially as the day wears on or after a particularly difficult call.  Our collectors use one simple trick before each call to help them stay on track:  SMILE!  You will be amazed at how smiling helps you feel better and gives you a better attitude for the next call.

Trucking Company Profits Collecting on Past Due Accounts

We have a client who uses a provision in the U.S. Code of Federal Regulations (“CFR”) to collect significantly more than the original balance due on accounts sent to collections. As an example, we collected over $22,000 on freight bills that were only $11,000 if they had been paid on time.

Section 49 377.203 g(1)(ii) of the CFR says “Carriers may, by tariff rule, assess reasonable and certain liquidated damages for all costs incurred in the collection of overdue freight charges. Carriers may use one of two methods in their tariffs: ….The second method is to require payment of the full, non-discounted rate instead of the discounted rate otherwise applicable.”

The key to being able to take advantage of this law is to quote prices at a gross rate with an applicable discount if the customer follows the tariff rules which include paying on time. Most of us see this approach with health care bills, where there is a gross charge and then a discount based on rates negotiated by the insurance carrier, so the consumer or carrier is only responsible for the discounted balance.

Our client has a standard tariff and then quotes discounts typically in the 20% to 55% range so that their prices are competitive. This is what customers pay if they pay on time. If they don’t, our client will send a notice that the discount has been removed and a revised invoice at the gross amount. This typically results in the customer arranging to promptly pay the original invoice amount. But if that doesn’t happen, the accounts get turned over to our agency.

Our client does not want to lose money on accounts sent to debt collections, so we are required to collect, at a minimum, enough above the original invoice amount to cover our fees so the client receives the full amount originally charged. Of course, we are motivated to collect as much as we can as allowed by this law, so the net result is that our client gets substantially more than the original invoice amount on many cases, resulting in a profit on accounts sent to our collection agency.

While we make it standard practice to send these debtors a copy of the CFR section cited above, some refuse to accept that they now have to pay more. Each time we have gone to court, we have been awarded a judgment for the non-discounted amount plus interest and costs. We explain this to debtors and encourage them to settle at a significantly reduced rate rather than going to court, but some insist on experiencing a painful lesson.

What I find most interesting is that most of the freight forwarders and trucking companies who send us accounts do not use this approach. They simply quote a fixed fee. Therefore we do not have the leverage of a dramatically higher non-discounted amount to prompt rapid, profitable settlements and big savings for debtors versus the litigation alternative.

Small Payment to Determine Integrity

This Article by Dean Kaplan was originally published on our Blog at The Kaplan Group.

It is frustrating, or worse, when a business customer does not pay their first open invoice on time.   Perhaps something just happened at the customer's business after the credit decision was made that has resulted in cash flow problems.  But, there is also the concern that this is just a 'bad apple' that was not observable during the credit evaluation process.  When trying to collect, whether in house or when assigned to a collection agency, quickly determining which is the real situation can have a big impact on deciding how to proceed and ultimately collecting the money.

In recent articles we've talked about methods to determine if a debtor is telling the truth.  But, in a situation where a business has never paid a specific vendor, regardless of the documented circumstances, the overriding question is:  "Will this company ever pay anything?"  The only way to know is if they make a payment.

In collections, we are all concerned about establishing a bad precedent by accepting a small payment.  We don't want customers or debtors to get the impression that small payments over a long term is acceptable.  Nor do we want them to think that a small payment from time to time will prevent a vendor from taking more aggressive action.  But, at some point with a first time customer who has never paid, finding out if they have integrity is more important than the concern about setting a precedent.

When these accounts come to our collection agency, we quickly pivot to this integrity question if our standard collection efforts don't result in immediate payment.  We use 'transparency' as a way to determine if we are working with a professional debtor or a potentially viable payer.  We explain to the business owner or executive that we need a small payment just to establish their integrity, and if they can't afford as little as $100 (on smaller claims), we have to assume they will never pay anything unless forced by the courts.  We of course explain that this does not set any precedent regarding size and timing of future payments, but is simply to determine their integrity.

We have found that this technique frequently is successful in getting payments from some companies, and this does impact the collection process going forward.  Even more importantly, if a company refuses to make even one small payment, it tells us and our clients a lot about how we should handle the claim.  This same technique can be used by in house collection departments to give insight on how a specific account should be handled.

Excuse or Explanation? How to get your money!

http://www.kaplancollectionagency.com/collection-call-tips/excuse-or-explanation-how-to-get-your-money/

How to Separate Fact From Fiction

http://www.kaplancollectionagency.com/collection-call-tips/how-to-separate-fact-from-fiction/

Fact vs. fiction media

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“We can’t pay due to cash flow problems” media

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