It is hard to imagine a business without any delays in collecting its accounts receivable. Often, so as not to lose a client, we do nothing. Unpaid receipts and invoices not only generate additional workload but also lead toliquidity problems in creditors or a complete loss of an amount due for a service provided or goods delivered. The consequences of those problems are less severe for companies that have developed a proper approach to accounts receivable management.
This may naturally involve an attempt at creating your own debt collection department or close cooperation with a reliable debt collecting company, which not only recovers debt but also participates in the verification of future contractors, monitors payments and provides legal services, if necessary. Debt collecting companies are rapidly gaining in importance in Poland – they become an essential partner and ally of businesses.
The purpose of debt collection is to recover overdue accounts, but the key to success as a debt collector is primarily time.My experience is that creditors do not pursue debt recovery claims or do not know how to recover debt in a professional manner. Often they explain that if they “insisted on payment”, they could lose the client. And yet several clients who fail to pay can cause a finacial gridlock and suddenly we turn from a creditor to a debtor and the person we owe money to might not be that understanding. Going back to the issue of reaction time, the majority of small and medium-sized enterprises does not monitor their accounts receivable. It is only when they face liquidity constraints that they become interested in unpaid accounts receivable. Another element is the verification of the financial condition of our client and consistency in our actions. Without knowing what effective debt collection is, business owners recover their own debts. After one phone call, when the client tells them, for example, “We’ll pay right away, don’t worry, you know us,“ they keep waiting, time flies and works against them. Remember not to settle for empty promises. Set a specific payment date and inform the client about your further steps if the money does not appear on your bank account.The hardest part is that we have to consistently deliver on our promises, for example, about passing the matter on to a debt collection agency or taking a legal action. But there is more to it than that. To ensure successful debt recovery, you must know how to precisely use those individually selected debt collection tools which appear the most effective. A debt collector must be a psychologist, a lawyer and an economist, who knows particular industries and their prevailing payment trends or lack of them, all at the same time. Let’s think: Do you, as entrepreneurs from different sectors, have time for that? Isn’t it worth trusting professionals, if the times when debt collectors were recruited from among local bruisers are gone? Professional debt collectors receive specialist training in such areas as negotiation, mediation, and the basics of lawand legal matters. They have knowledge and experience but, above all, are not emotionally involved with the debtor. Debt collection negotiations are extremely difficult and not everybody is suited for this job. Mistakes, usually made at the beginning of the recovery process by people without proper knowledge, not only psychological but also legal, can contribute to preventing you from getting paid for your work.
How can you benefit from employing an external company?
First of all, you do not incur internal costs related to proceedings by writ of payment or debt collection proceedings. High staff costs, resulting from delegating debt servicing to your employees, are not your problem either. Other benefits are effectiveness and consistency. A debt collecting company has devoted years to developing methods which are a stronger motivator for debtors than requests from a creditor. An effective and reliable debt collection agency can cover the entire recovery process, from A to Z. This means that it will not only take care of amicable correspondence with the debtor, negotiations and mediation but also, should the out-of-court actions fail, will conduct the whole procedure aimed at obtaining a writ of execution, help the court enforcement officer find the debtor’s property, and support enforcement processes. Those actions, taken by a single external entity, speed up the debt recovery procedure. The manner in which the debtor is treated can be determined using economic information gathered by the collector during the process.Compared to reminders or requests from the creditor, awareness of the debtor’s solvency ensures greater effectiveness and quicker decisions at further debt collection stages.Every case is handled individually, which guarantees that suitable measures are used to achieve a positive outcome for each debt. It is increasingly common that the debtor does not pay not because of ill will but because of various unexpected circumstances, such as sudden lack of liquidity or personal problems. The reason for discontinued payment should then be determined to prepare an adequate plan and method of negotiating with the debtor. Professional debt collecting companies usually act as a mediator in such cases. After providing information on the debtor’s condition to the creditor, they suggest payment terms or other debt settlement forms which are convenient for both parties. Obviously, everything depends on the creditor, on whether he chooses to accept the arrangements or not. The debtor’s compliance with the payment terms prepared by a debt collecting company is beneficial for him, as it helps to avoid the debt increasing by other costs related to court and enforcement proceedings. The main task of a debt collection agency is to make the debtor realise that he cannot escape responsibility for his debt and to keep monitoring him.
Collecting your own debt
Companies decide to run their own debt collection processes, because they are afraid of high costs of an external company, handling charges, unproductive search for the debtor, lack of involvement, ineffective payment collection and, finally, being kept in the dark about measures taken. There is no need for that. We should choose debt collecting companies carefully, focusing on those with an established market position and proven track record. A reliable debt collecting company offers a full range of legal and debt collecting services, and acts as a consultant in signing agreements and settlements. Choosing to collect your own debt, you must not forget about the hard-and-fast rule: consistency. Nothing confirms the debtor’s belief that he can go unpunished as much as lack of regular reminders, constant contact and appropriate procedures on the part of the creditor. Some companies allocate debt collection to departments with completely different competences, includingsales or accounting departments. Whenever wrong people are responsible for debt collection, the result is this: inconsistency. The debtor will not consider his debt a priority. But there is another serious consequence. The fact that an employee is a great salesman does not mean they can be as good at debt recovery. Lack of proper skills can ruin your reputation in the eyes of the client.
Going back to the concerns about the high costs of debt collection, the new Act on Terms of Payment in Commercial Transactions of 28 March 2013 (Journal of Laws of 28 March 2013) gives the creditor the possibility to recover debt collection costs in case the debtor failed to make payment on time, under the Act alone. The Act introduces two types of debt collection costs a creditor may demand from his debtor, regardless of the unpaid amount.
More information on debt collection in the next article.
Monika Toczyńska – Audix Polska
Fotografia © Tatiana Pałucka