BLOG« Go BackReasons why your company’s bad debt is out of hand and how to fix it.
The importance of getting unpaid accounts collected on at the earliest possible moment
In the debt collection industry, we have had years of experience when it comes to debtors who are slow to pay or unwilling to pay completely.
There is nothing more frustrating than having provided a service, at your own expense and not being reimbursed for these services.
We see this every day, where debtors are distracted by flashy cars or other instantly gratifying objects that they would rather spend their money on, rather than pay the business from which they have benefitted, this is especially upsetting in the education sector. However, no matter which sector you are in in business, bad debt has a direct effect on your company or school and the pinch is felt in a brutal way in these insecure economic times.
What we can help with is rectifying this delinquent behaviour before it escalates to become an enormous debt recovery mission-impossible rescue endeavour.
We will look at how to curb and prevent bad debt from becoming worse debt:
It is no good for a debtor to be told two or three years down the line that they owe you money from way back then.
Most of the time this debt has prescribed and by law you are not allowed to collect on debts dated back three years. The National Credit Act made this decision as there was unethical collections being made on very old debts. To be fair to both parties involved, the cut off is not at 3 years, but to be quite honest, if you are waiting for that long, the chances or returns are already at less than 1% possibility.
Find a team that can assist and support in your collection endeavours. And then it is important to work with the team provided for you, because, if you provide them with the correct, most up to date information, they can provide you with the best possible service and get collecting.
Look around for a company with a client and debtor friendly payment plan, and one that can provide more than just collections. Some companies can do credit checks, tracing and blacklisting for you as well.
The bad debt timeline
When dating debt, like archaeologists, we must date it backwards. The age of a debt can be dated back to the date which it was agreed upon to be due for payment.
Thus, we can look at the rate of ageing of debts, and how rapidly it ages. If you can picture a steep downward slope, within 3 years it reaches the collection end. That is why we stress so that the first three months are the most critical for making returns.
Going from toddler to granny in 24 months flat
The rapidity of ageing on debt is baffling. A bad debt takes a plummet downward from the moment it is defaulted on. From a 90-80% chance in the first 2 months, it almost halves in the next 2-3 months. Leaving little chance for you to play catch up on your own time.
This just proves how quickly one must act in order to receive successful results. It is important not to drag one’s feet in this case. The transition from crawling to running to walking frame happens far quicker than many people like to believe, and the problem here is that by the time most people decide to act, it might already be too late.
A Lesson from Julie Andrews:
“Let’s start at the very beginning, a very good place to start.” As per the famous lyrics that Julie Andrews sang in the sound of music, it is of utmost importance to begin your collections when the defaulting starts. Thus demonstrating to your debtor that you are serious about getting the funds where they belong and not hesitating to act provides them with the psychological motivation that you are not one to be defaulted on. In this way, you teach your debtors how to treat you.
Collection versus Management
It is so evident to us on a daily basis which debts have been left too long and which were quickly acted upon, and soon saw returns. The ideal time to start your collections for maximised returns is at the 60-90 days mark, where the debtor has defaulted between 2-3 months. At this point it is mere psychology. When the receipt of service or product is still fresh in their minds is has a much more impacting effect than if one or two years down the line one must be reminded of the service or product they had received.
is a pro-active action plan to prevent and curb the delinquent behaviour right at the beginning. It is management and allows you to keep stock of what is coming and is one in which anyone from the waiting game need not apply.
is a process that occurs with you on the back foot. This process is effective to some degree, but the results hereof are so much less than their potential was if the management strategy was applied.
There is not a day that goes by that we do not receive excuses from people as to why they cannot or did not pay their accounts.
To avoid excuses delaying the process, it is important for you, as the service provider, to have up to date records and a good relationship with your debt collector. For the most important aspect of catching the excusers is getting all the facts straight and maintaining a united front with regards to issues that may arise and solving them together at the soonest possible moment.
Outsource the ignorers
Something that we hear very often is how debtors disregard their debts with you, don’t pay and then ignore your requests to pay the accounts presented. This is especially evident when there is a friendly relationship present between the debtor and the service provider. There is nothing wrong with having a good relationship with your customer, but this sometimes sends the wrong message, that it is ok, because I’m friendly with them, to not pay…for now.
But that “for now” becomes forever if nothing is done to curb this behaviour.
This is one of the two reasons why it is important to outsource this type of service.
Because an outsourced company is so much more efficient at collecting due to their expertise and focused energy in this area. It firstly
makes your life easier not having to nag at the debtors to pay their dues, thus leaving you open to continue the relationship as per usual, with a new adjustment, of course. Freeing up your time to get to those important tasks involved in running the business.
it gives the person who has been handed over a reality check. When that message comes through and a consistent follow up takes place, people respond to prevent any further damage to their reputation and chances of damaging their credit scores for future.
Assess the risks
Although it is important to outsource, it is also critical to assess the risks involved when employing someone to do collections for you. Law action is tedious and highly costly, with little to no returns results. Whereas debt collection companies can be better, they either add extra hidden costs to you debtor, sometimes without notice, making it harder for them to pay you back. OR the costs of the collections is far too high to even make a considerable dent in the bad debt books.
What you need to look for in an outsourced services provider:
Three steps to a better bad debt book
Little to no risk to you
Effective and results driven
Service and relationship maintenance
Focus and expertise
1- Act immediately
: 60-90 days is prime time for getting the best results
2- Be pro-active
: Give the team assisting you the fastest, most updated information regarding defaulting debtors
3- Outsource the problem
: solutions happens quicker when there is focus applied and the correct, rapid actions are taken.
Get active, FAST!