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posted on 2014-04-28 by Dean Kaplan
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.
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posted on 2014-04-17 by Dean Kaplan
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.
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posted on 2014-04-09 by Dean Kaplan
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.
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posted on 2014-04-06 by Dean Kaplan
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.
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posted on 2014-04-02 by Dean Kaplan
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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