Steve Harms

Wednesday, July 20, 2011

Collecting past due balances: Change can be good....or not!

Changes of Ownership

A change in ownership of the customer can change bill paying habits dramatically. You may have had a great relationship with a customer for years which may have resulted in being lax on updating credit information such as information contained on the credit application, financial statements and the other documentation discussed in detail in my books, including Credit and Collections Kit for Dummies. Upon making a call, you may discover that there are different voices on the phone and it can be revealed that new ownership took over. The name of the company remained the same so as to show some continuity of business. People like to deal with businesses that have been around for a while with little change.

Perhaps the most dramatic event which can occur on a change of ownership was refusal of the new owners to pay debts incurred by the prior owners. For example, if the change of ownership occurred in June last year, even though the name of the company remained the same, no changes were reported to you, an investigation may have to be initiated as to which invoices were actually sold to the prior owners, which invoices were sold to the current owners, and are the current owners liable for the debts of the prior owners.

Changes in ownership can significantly affect bill paying habits. Therefore, this is a key reason to periodically have your client submit a new credit application as the application itself defines the name of the business entity and who the owners are. Don’t count on your customer to be forth right in providing that information.

Changes of Address or Phone Number

Observing a change of address or phone number is significant. It may reflect new ownership. It may be a result of a conflict with the landlord (an eviction perhaps).

Two trends have become increasingly popular in terms of address and phone number. With regard to addresses, it is increasingly common for small and medium sized businesses to show a post office box as the address or, more disturbing, the address of a mail drop service (such as a UPS store) as the physical address of the company. It is much easier for a customer to become elusive if a physical address is not disclosed to you. If a customer uses a post office box or a mail drop address, your credit application or some other form should insist that a physical address also be disclosed. You may follow up for verification using a post office confirmation of address as per the template provided below and on the CD.

A customer having the same phone number for a long period of time use to signify stability because phone numbers were tied in with addresses. Now, a phone number can receive a call and through modern technology that call can be forwarded anywhere in the world. Thus, a customer having the same phone number for a long period of time no longer signifies stability. You must keep tabs on the customer as to the physical address where the customer is located per the discussion above.

Changes In Order Volume

Part of your monitoring process with customers should include the ability to track the frequency or quantity of orders. Often times, a customer maintaining a steady volume of orders with you also maintains good paying habits. A decline in orders frequently leads to a decline in paying history. Maintaining good communication with the customer, most likely through the sales department at this point, may answer questions as to why there is a sales decline for that particular customer.

Noting Operating Losses

As part of the monitoring process, you receive financial statements which include balance sheets and operating statements. The operating statements show operating profits and losses. Should you spot a decline in profitability over time, deterioration in paying habits often follows.

Changes in Customer Attitude

A change in customer attitude can be subtle but very significant. For example, if the customer suddenly is disputing the accuracy of your billing or otherwise starts nit picking fairly minor issues, this might signal customer cash flow problems which will result in slower paying habits. If a customer incurs cash flow problems, they would like to be able to justify why they are paying slowly and might raise these minor disputes.

Your response is, once again, an open line of communication with quick resolution of issues, especially minor issues. Once those issues are resolved to the customer’s satisfaction, bill paying should return to normal promptness. If it doesn’t, the red flag is up and your instinct should be telling you to be cautious as to future extensions of credit.

Monday, July 11, 2011

Collecting Student Loans

The Federal Government categorizes the following loans as student loans: Perkins Loans, National Direct Student Loans (NDSL), and Defense Loans. The government has passed special legislation for the collection of student loans, favoring the creditor:

* Statute of Limitations: The statute of limitations (deadline for commencing a collection lawsuit) to enforce collection on Perkins Loans or National Direct Student Loans has been preempted by federal law, meaning that these loans can be pursued for the debtor’s lifetime.

* Non-Dischargeability: Under most circumstances, debts incurred under Perkins Loans or National Direct Student Loans under the Higher Education Act are not dischargeable in bankruptcy. Debtors may seek an exception based upon proof of special hardship, but that exception has been interpreted very narrowly.

* Recovery of Collection Costs: A creditor may recover reasonable collection costs on Perkins Loans or National Direct Student Loans. Recoverable costs may include the cost of address searches, collection actions including the cost of reporting defaulted accounts to credit bureaus, personal expenses incurred while collecting the debt, litigation expenses, attorney fees, and the costs of professional collection services such as the fees charged by collection agencies.

Student loan debtors are responsible for interest, which accrues at the contractual rate under the promissory note throughout the collection process.

Credit and Collections Kit...take a look!