.....Rethink Collections

Credit Management Guide


MKA  How to Identify Bad Debt

Identifying bad debt is one of the easiest things you can do to increase your bottom line.  All you have to do is recognize the warning signs.

Broken Promises - This is the Red Flag of Red Flags! Keep in mind that when a debtor is going to pay his/her bill they will. If they are not going to pay they will continue to make and break promises as long as you let them.

Avoiding - When a customer has gone delinquent they should be in constant communication with you. When they won’t return your calls and/or don’t respond to written communication in regard to their balance they have become a problem debtor. This is when you need to place the account with a collection agency. Don’t stall, the longer you keep the account the less likely the debt will be recovered.

The Dispute - When a customer has a valid dispute they will address it with you immediately.  However, if a customer waits to dispute the debt until they became delinquent typically they are looking for a way out of paying. In most cases they will make unfounded complaints. The goal of their dispute is to deny and avoid any financial responsibility.

Disconnected Phone / Returned Mail - When this happens the account should be placed for collection immediately. These accounts have the lowest recovery rate for even a Professional Collection Agency. Don’t count on the debtor contacting you. If they intended on paying you they would have provided a forwarding address of a new phone number. Many debtors become overwhelmed by their debts and go into hiding. The best approach is to allow an agency to attempt to locate them and get it on their credit bureau.

You can keep bad debts to a minimum and have more success recovering them if you identify them early. Don’t hesitate to act promptly and decisively. It’s always more effective to pay an agency a small percentage to recover the debt instead of getting 100% of nothing.

MKA Reducing Bad Debt

All companies should develop and follow an in-house policy on handling delinquent accounts. This should include when to contact them by phone, in writing and how long you should wait before placing the account for collections. The standard mark is 90 days delinquent. Just remember, if you didn’t pay your electric bill for 90 days they would turn your power off. If you didn’t pay for your car loan they would repossess your car. Your company has the same right to your money. You provided a product and/or service and the customer is required to pay you for it. Once you give the customer a Final Demand, for example a 10 Day Demand for Payment, place the account on the 11th day. Continuing to extend the deadline, make “1 final call” or send another letter only demonstrates to the debtor they can stall you even longer.

Most people and/or companies you extend credit to will pay as agreed. Some will pay after a simple reminder. Others will go through a financial hardship but will remain in communication with you as they fully intend to pay. Most will explain their financial status and their reason for non-payment. And the final group will require more contact but will ultimately pay you. Customers that fall into these categories are typically not “Collection Agency Accounts” However; we will accept these accounts and in some cases soften our approach at your request.

In order to establish a successful in-house policy it must follow these simple rules.


•           Be firm, but realistic.
•           Create guidelines that stipulate how each account              should be handled.
•           Have an immediate course of action for customers that              become debtors
•           Customers must conform to your policies, not the              other way around.

Maintain an in-house collection a schedule that outlines what to do with an account from the time it becomes mildly past due until it becomes severely past due.

MKA   When to Hire a Professional Collector

We all know that the older an account is the less likely it is to be collected. If a debtor owes 10 creditors and 8 of them place the account with an agency and 2 of them don’t you can be assured the debtor will always pay the collection agency first. Collection Agencies apply constant pressure in effort to make the debt they are trying to collect the debtors top priority.

Professional Collection Agencies have collectors whose sole purpose is to recover delinquent accounts. They have a vast knowledge of different techniques, collection laws, methods of approach and the technology to recover your money. Working with a Collection Agency List collection agency accounts on special listing forms. Accurate information about the account will improve collections. In all cases, the minimum information should include:


•           The correct name, address & telephone number of              the debtor
•           Name of debtors spouse
•           Whether mail has been returned
•           Debtors occupation or last known occupation &                            phone number
•           Names of relatives, friends, and references
•           Summary of any disputes
•           Date of last transaction
•           Cellular phone, fax, pager numbers
•           Nick names or aliases, maiden name

Cooperate with your collection service. Rely on the experience, diligence and judgment of your collection service for the best and quickest results and promptly refer any developments on the assigned accounts to the collector.

See that your collection service is fully acquainted with the nature of the goods or services involved. Professional collection services are personal in nature. If the collection service is familiar with the goods and services your company provides, it will be better suited to handle the complex situations that arise during collection.

Do not place an account with more than one collection service. Make sure that if you change collection agencies, the account is only being worked on by one service.

MKA    Choosing a Collection Agency

Choosing a professional collection service to manage delinquent accounts and other related tasks is a wise decision. The agency should represent your organization in a responsible and professional manner, and provide a satisfactory rate of recovery while maintaining your public image. This decision involves more that just giving your business to the lowest bidder - it requires careful consideration.

Consider the following qualifications and credentials when choosing a collection service.

• What state is the agency based out of?

Some states have strict regulatory bodies that monitor everything including the accounts they hold your money in. Some states require the agency to maintain an agency license and bond as well as completing criminal background checks on the owners. In some states, none of the above is required. Arizona is one of the strictest states therefore you receive the most protection.

• Are their contingency fees clearly stated?

There should never be hidden costs or secret clauses. Always have your contingency fees in writing from the collection agency.

• Is the agency designed to give the best possible service?

Reporting – Software to track accounts – CBR reporting

•Does your agency understand who they work for?

    Your agency is a direct reflection of your company.

Contact Us

Makenna Kali & Associates

2843 152nd Ave NE

Redmond, WA 98052

Phone (888) 652-2211

Fax (520) 290-0207