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Time is the Debtor's Weapon
Excerpts from How To Collect Debts (And Still Keep Your Customers)

Book CoverThe longer an account remains unpaid, the lower the probability of collection. Data from the International Association of Commercial Collectors and Dun & Bradstreet shows that among companies that manage receivables internally, the probability of collecting a payment ninety days past due declines by 12 percent for each additional thirty-day period. And retaining bad debt doesn't pay either. A company's probability of collecting is 50 percent greater for a claim that is placed with a collection agency when it is six months past due than when it is one year past due. Yet, we regularly hear creditors say, "If I give my debtor enough time, he will probably pay."

DEBTS DON'T AGE WELL.Let's talk specifically about your accounts that are 90 days old or older. Most people fool themselves into believing that these accounts are valuable. But what would happen if you went to someone who was totally independent and asked him to set a fair market value?

Let's gather all your ninety-day accounts and take them to your bank. You say to your banker, "Mr. Loan Officer, I've been a good customer of yours for many years, and I want you to consider lending me some money, and I want to use this special group of accounts as my collateral." How much money do you think your banker will lend you? You probably won't get a dime.

Several years ago, Martin became interested in investing in a franchise. He heard about this hot new business that was growing very rapidly. The franchiser was getting ready to increase the initial franchise fee by several thousand dollars, and one of his salesmen talked Martin into sending a $5,000 refundable deposit to lock in the current fee. While he continued to do research on the company, a friend from California, who coincidentally happened to be a vendor of the franchiser, mentioned that he thought that the company was growing too fast. He warned Martin to be careful.

Martin got nervous and asked the franchise salesman to return his money. He promised that he would return it immediately, but no check arrived. Calls to the accountant, attorney, and owner resulted in excuses and stalls. Martin decided that the only way he would get his money would be to threaten them. He told them that if he didn't get his check by the end of the week he would call their franchisees, their franchise sales organization, and everyone else he could think of and warn them of their company's inability to pay.

He received his money that week, and the very next Thursday the franchise went bankrupt. If he had waited just one more week, he would have lost his $5,000. Remember that an outstanding receivable is potentially just a day or two away from disaster.

The longer your debtor owes you money, the more likely that something can go wrong. Your debtor might:

  • quit his job, get laid off, or be fired
  • be called into the service by the military reserves
  • retire
  • get sick, have an accident, or die
  • skip or move
  • have marital problems -- separation or divorce
  • file for protection under the bankruptcy laws
  • be sued by other creditors who would be ahead of you in a long suit line

You can suffer similar complications when you try to collect from a business. We have been in business for more than fifty years. We have always been profitable, but we've found that when you go to sleep at night, you never know what you will face the next morning.

The list of things that could go wrong is probably endless. If we had a nickel for every one of our collection-agency clients who waited until their debtors had filed Chapter 7 or 11 bankruptcy before turning over an account for collection, we would never have to work again.

COLLECT WHILE THE MAGIC IS STILL FRESH. It seems to be a rule of human nature that when you do a favor for someone, the value of that service appears to decrease rapidly afterward. The longer people owe you, the more difficult it becomes for them to part with their money. They forget how you helped them by delaying their payment. They look for excuses not to pay and rationalize that something must be wrong with your product or service. Down go your collections and up go your customer disputes.

When you are trying to keep your accounts receivable current, it's important to encourage your customers to pay while the excitement and enthusiasm of the new product or service is still fresh. Once it gets stale, so does your customer's willingness to pay.

David and Martin Sher own and operate AmSher Receivables Management, based in Birmingham, Ala. David is president of the International Association of Commercial Collectors, and Martin is past president of his state unit of the American Collectors Assn. He is also a certified collector and certified instructor for the ACA. This book was inspired by the Sher brothers' seminar, Championship Collections.

Reprinted and excerpted with permission from How to Collect Debts (And Still Keep Your Customers)
By David Sher and Martin Sher
Copyright 1999, David Sher and Martin Sher
All rights reserved
Reprinted with permission of Amacom, a division of the American Management Association International, New York, N.Y.
To purchase copies of AMA publications, please call (800)-714-6395

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