Member Links

IACC Blue Book

IACC Logos

Scope

IACC Listserve

Benchmarking

Members Only Resources

Bylaws

	Home About .

Commercial Collection Services - Referral to Specialists

When the credit department loses effective contact with the debtor, it is time to refer the account to a commercial collection service. 

If the debtor has ignored requests or has broken payment arrangements, continued internal efforts may not be worth additional time. They will cost your firm money. 

Of course, referral should be made in accordance with the company’s aging policy unless special circumstances arise. 

Being responsible for the principal’s assets, the credit manager will have set up internal controls that will account for a high percentage of receivables. But the small remaining percentage should be placed with a specialist—a professional commercial collection service. 

There are many advantages for the credit manager doing this:

• A collection service has special procedures and a position as a third party that commands attention from a debtor. It provides efficient and immediate collection contact and advises at once if preemptory salvage action is required. It is persistent and aggressive in obtaining prompt action for its clients. 
• A collection service has strong psychological advantage. The debtor no longer is dealing directly with the seller. They are dealing with a third party whose sole function is to collect this account. The debtor knows this, and they know that all legal means of collection will be used. 
• A collection service allows the credit department’s time to be used more productively. It is estimated that five percent of delinquent accounts take at least 20 percent of the credit department’s time. This time is consumed by letters, follow-up notes, telephone calls and such. By using a collection service, more time can be given to internal credit controls and, in the long run, fewer accounts will be allowed to reach severance status. 

Experienced credit and financial people are aware of the value of a collection service in maintaining the continuity begun in their internal control system. They know that delinquent accounts are not always "bad." But contact time, cost of money outstanding and pressure from new accounts for collection indicate to them that professional assistance is a practical consideration.

The Role of the Attorney
The commercial attorney also has a role in the collection procedure. When it is determined that an account cannot be collected by collection service procedures, an attorney may be engaged. Most commercial collection agencies have effective contacts for placement of claims with commercial attorneys. 

Exchange of business between collection services and attorneys guarantees informed attention for the credit grantor wherever the debtor is located. If suit is justified, it will normally be recommended that the claimant advance the necessary costs and provide the backup paper work. 

It is often asked why there are such long delays in resolving a simple collection matter through the legal process. The reason is that the debtor, whatever their excuses may be—financial problems, an honest dispute or an unfounded desire to stall—uses the legal machinery for delay. 

For example, they may hire their own attorneys and instruct them to use every tactic that the law allows to defeat—or at least to delay—the suit. They may find many reasons, all acceptable to the courts, to delay their appearance. They may enter a counter claim against the creditor. They may offer a settlement. Finally, if the claimed obligation is large enough, they may request a superior court or a jury trial. 

Often, the company’s reasons for delay are linked to financial problems. Throughout these long procedures and pleadings, they avoid paying their creditors and, thus, buy time. 

Additional costs and possible long delays through the legal process are the primary reasons that most credit managers use professional collection services as the first step and legal process as a last resort. A service such as a third party representative has the expertise to maintain close contact with a debtor, to police a schedule of payments and to present a client’s demands for payment by direct contact.

NEXT SECTION

BACK TO TOPIC INDEX