New system provides good news about bad debt

By Peter Santaniello
Boonasanti, LLC

Many of us feel the pain from aging accounts receivable, especially the part where we have to use traditional collection services for overdue accounts. From letter campaigns to selling the debt for pennies on the dollar to collection companies, these traditional methods have historically collected on very little of that debt and often cost more than they deliver in returns. And in many cases, they alienate what could be good customers in better times.

Nationally, collection agencies recover only about 15 to 20 percent of delinquent accounts, out of which they then keep 33 to 50 percent as a collection fee. This success rate is so low because agencies concentrate on the same things you do — fresh accounts with large balances.

Collection agencies want what you cannot afford to give them — accounts which are still relatively easy to collect, meaning around 90-120 days past due. Instead, agencies receive accounts that are more than 242 days, or a full eight months, past due. No creditor finds it cost-effective to give accounts to any outside agency while there is any chance of recovering those accounts in-house. Only after creditors have exhausted their own collection skills and efforts will an agency be given an opportunity to collect these delinquent balances.

Moreover, creditors expect collection agencies to work small balances (less than $500) with the same intensity as they work the larger ones. But the agencies can scarcely afford to do this. As a rule, and in order to turn a worthwhile profit, agencies spend little or no time with lower-balance accounts — they concentrate on the larger ones.

These traditional collection agencies seem to have little choice but to follow their model, leaving much of your collectible debt to go from 30 to 60 to 90 days overdue and more. It’s a seemingly endless circle of debt aging, with you collecting on less and less as the cycle continues.

Many companies here in town retain a small staff to try and collect on debt, resources that can be used much more effectively to increase the bottom line. A low, fixed-cost, high-rate-of-return collection agency with proven results could go a long way to helping folks with these kinds of slow payment and delinquent account issues.

In 1984, Christopher Rehkow and Lynn Goldberg were sales managers at large national collection agencies, and both were dissatisfied with the industry. No agency, it seemed, offered what their clients wanted: high debt recovery for a low, fixed cost. With that idea, they started National Credit Systems, Inc. They designed NCS to be economical, offering exceptional results while preserving the corporate goodwill of its customers – all for less than 10 percent per account on average.

This cash-recovery system successfully collected $250 million last year, and serviced more than 20,000 credit grantors – nationally averaging more than 57 percent of accounts collected. For specific industries here in town, it’s done better than that, and certainly much better than the national average for those tough-to-collect industries – including the homeowner, community, and association management, hotels, hospitality and travel, banks and other consumer- and commercial-lending organizations, and even medical, dental, and convalescent care – NCS now has a new product specializing in supporting insurance collections. For the last 24 years, NCS has demonstrated exceptional success and leadership in the collections field, and now their system has come to southern Arizona.

Many of us feel this problem will get bigger before it gets smaller. Companies here in Tucson are feeling the crunch of aging debt more each month. We’ve captured our share of the $2.565 billion (April, 2008) national consumer debt. According to a recent article published by Men’s Health magazine, Tucson ranks 51^st of the 100 worst U.S. cities with respect to debt and credit. We rank 45^th in foreclosures, 36^th in housing costs, 80^th in bankruptcies, 33^rd in credit scores, 47^th in credit debt, and 56^th in credit usage.

If these statistics seem distressing, you might want to consider using a collection agency such as NCS that charges a fixed fee rather than a percentage fee — NCS’s fees range from $14.50 to $35 per account, less than what typical in-house collections can cost.

The fixed-fee system provides three major advantages:

1. Because they will not lose a significant percentage of their money, creditors no longer have a reason to hold their accounts past 90 days, and are free to send these highly recoverable accounts to the agency.

2. Because the agency receives accounts while they are still highly recoverable, recovery rates are often two to three times that of percentage agencies.

3. Because its profit margin remains constant regardless of the balances it works, a fixed-fee agency puts as much effort into recovering small balances as it does larger ones. Businesses are able to send all of their slow-pay and delinquent accounts to the agency as soon as their in-house efforts prove ineffective.

National Credit Systems provides a superior solution to accounts receivable management and all collected monies are remitted directly to you. This system increases recovery rate, lowers collection costs, improves cash flow and offers a guaranteed 400 percent return on investment. The fixed-fee structure permits users to turn over accounts at a significantly earlier aging period which substantially increases recovered dollars. This is done by dealing with problem accounts ethically and diplomatically, while you maintain control of your accounts receivable. There are also options for Skip Trace (debtor locator service) and litigation to bring debtor accounts to final resolution.

Whether you decide to use a fixed-fee or a percentage-fee collection agency, always choose one that reports non-paying debtors to at least one of the national credit bureaus — Experian, Equifax pr TransUnion — and preferably reports debtors to all three.

It’s time for some good news about bad debt. For more information, contact Boonasanti, authorized sales agent for NCS in the Tucson area at 1-800-363-7215 ext. 3570.