- 1 Help! What to Do When Customers Won't Pay Their Bills
- 2 How Long Can a Collection Agency Try to Collect a Debt?
- 3 What Happens if my Debt is Sold to a Collection Agency?
- 4 Know Your Rights – 12 Common Debt Collection Law Questions Answered
- 4.1 2. How do I pay off debt in collections?
- 4.2 6. How do debt collection agencies find you?
- 4.3 8. What happens when your debt goes to collections?
- 4.4 10. How to respond to a summons for debt collection?
- 4.5 11. How much do collection agencies pay for bad debt?
- 4.6 12. Who enforces the fair debt collection practices act?
Help! What to Do When Customers Won't Pay Their Bills
In point-of-sale businesses like restaurants, retail shops and online stores, customers pay for their purchases up front. The only way you won't get your money is if something goes wrong with your credit card processor. But if your business operates on an invoicing system, you'll generally need to give customers up to 30, 60 or even 90 days to send in their payments — and, perhaps unsurprisingly, some of them won't do it.
There are numerous reasons for a late payment or nonpayment: Perhaps the bill got lost in a pile of other papers (or, for email, in the customer's inbox), or the customer had an unexpected expense and couldn't afford to pay you by the due date. But regardless of the circumstances, an unpaid invoice can really hurt your business, and eventually you'll need to take action if you want to receive your money.
It might be tempting to call in a collection agency the moment the due date passes, but doing so right away might make the customer feel threatened and upset. You want to deal with the problem head-on, said Greg Waldorf, CEO of invoicing app Invoice2go, but being straightforward doesn't have to mean being aggressive. If a client or customer hasn't paid a bill on time, here are the steps you should take, in this order, to ensure that you not only get your payment, but also maintain a good relationship with the customer.
Reach out to the customer. A friendly reminder that a customer's bill is past due is the first step in collecting your payment. Most of the time, a late payment was an honest mistake, and receiving that first follow-up will make a client pay as soon as possible. Waldorf noted that the subject of money isn't always easy to address, so you may want to ease into the topic.
"Use an opportunity to check in on a customer's satisfaction for your services, and then discuss any approaching or past-due invoices," Waldorf said.
Resend the invoice. In some cases, clients will try to delay payment by saying they lost the bill, or that they need to reconcile their records to find the correct payment amount, said Hunter Hoffmann, head of U.S. communications for small business insurer Hiscox. If this is the case, Hoffmann advised sending an updated invoice right away — even if you know the customer has the original — to take away this excuse.
Give an ultimatum. When a nonpaying client ignores your emails and calls about his or her invoice, demand payment a little more firmly. Service businesses working with the client on an ongoing basis are in the best position to give an ultimatum, Hoffmann said.
"Set a specific deadline when service will be cut off to light a fire under them," Hoffmann told Business News Daily. "It's amazing how quickly they can figure out how to pay when they realize how hard it will be to replace your service in a couple days."
Waldorf advised requesting a time line for payment and continuing to follow up until the customer pays. If necessary, resend your original contract, indicating that you will escalate the situation if invoices remain past due.
Hire a collection agency. If repeated attempts to contact the customer and collect your payment have failed, it's time to call in backup. A debt-collection agency is a company that specializes in recovering payments that are typically more than 90 days past due. The company will take the task of following up with the customer off of your hands, using tried-and-true tactics to get the individual to pay. This Business News Daily article contains more information on when and how to hire a collection agency.
File a lawsuit. For most small businesses, the time and money associated with suing a nonpaying client are not worth it. However, if that client owes you a large sum of money and refuses to pay you or a collection agency based on the terms of your contract or invoice, a lawsuit may be necessary. For example, Business Insider reported that public relations firm Agency 2.0 recently filed a suit against its former customer, an electronic bike maker that raised more than $5 million on Indiegogo with the firm's help, for not paying or acknowledging the agreed-upon 10 percent cut of its raised funds. If you do decide to pursue legal action, consult with an attorney to determine how to proceed.
If you're strapped for cash and don't know when a customer will send his or her payment, a factoring service may be able help you get the money you need while you're waiting. With a factoring service, you sell your accounts receivable to a company for a certain percentage of the accounts' value (usually 70 to 90 percent), and that company will advance you most of that money within a few days. Then, it will collect your customers' payments and send the rest of the cash to you, minus the service fee.
It's important to keep in mind that factoring services are not collection agencies, and they will run a credit check on your customers before agreeing to purchase their invoices. If you use a factor for multiple customers' invoices, the service fees will add up, and you may end up losing money in the long run. To learn more about using a factoring service and how it differs from a collection agency, visit Business News Daily's guide.
You can never guarantee that every single customer will pay a bill on time, but there are things you can do to keep late or missed payments to a minimum in the future.
Discuss all costs and payment terms up front. Putting everything on the table right away not only sets payment expectations for your client, but also builds the trust necessary for a strong, positive customer relationship, Waldorf said. Before diving into a project, make sure that your client is fully aware of projected costs, and ensure that you take time to answer any questions up front.
"Having this clarity from the beginning will help strengthen customers' trust and commitment to paying the full amount," Waldorf said. "If anything changes along the way, alert your customers in real time so there aren't any surprises."
If a customer has a history of late payments, you may want to consider asking for a down payment, or allowing them to pay in installments, Waldorf said.
Send invoices right away. With so many tasks on your plate as a small business owner, it can be easy to lose track of a customer invoice. You may even to forget to send one in the first place, and going after a client for payment on a bill you never sent will only hurt your reputation. Waldorf advised sending your invoice as soon as a job is completed — and staying on top of it until it's closed out — to avoid falling behind.
Be persistent with late customers. If a customer won't answer electronic correspondences about his or her bill, Hoffmann said to call the individual — and keep calling every day until the customer pays.
"Don't be aggressive, just don't stop asking," Hoffmann said. "Emphasize that you want to settle up the accounts so you can both focus on more important things. It will become much easier for them to pay you than to keep dodging your calls and making excuses."
Nicole received her Bachelor's degree in Media, Culture and Communication from New York University. She began freelancing for Business News Daily in 2010 and joined the team as a staff writer three years later. She currently serves as the managing editor. Reach her by email, or follow her on Twitter.
How Long Can a Collection Agency Try to Collect a Debt?
Credit card and other debts carry a statute of limitations
When payments on a bill stop, creditors will assign the debt to a collection agency. The agency either buys the debt outright or works on a commission, taking a percentage of any amount it collects. The length of time a collection agency can try to collect a debt depends on a number of factors, including where the debtor lives.
A collection agency can handle a wide variety of debts, including credit cards, medical bills, utility bills and unsecured loans. A secured loan that has some kind of collateral backing, however, usually won't make its way to a collection agency because the creditor has the right to seize that property to meet the debt. This includes mortgages, car loans and certain business loans.
Debts are legally enforceable contracts until they reach a statute of limitations. This means that once the debt reaches a certain age, the creditor -- whether the original creditor or a collector -- can't sue you for it. Each state writes its own laws on the statute of limitations for debt. Many break this down into different debt categories, including written contracts, oral contracts, promissory notes, and open-ended contracts. The last category includes credit card accounts.
If he's going to sue you, a creditor must file a claim in your state of residence. The laws of the state in which you reside -- not where the creditor does business -- set the statute of limitations. In Arizona, for example, written contracts are enforceable for six years, while promissory notes are good for five years and open-ended accounts for three. For open-ended accounts, the statute of limitations begins to run on the day the most recent debt was due.
Although time runs out on a debt, legally, a collection agency can still pursue payment. A collector can write or phone you to arrange payment, and is only limited by the Fair Debt Collection Practices Act, which sets the rules for collection agencies. This law bars undue harassment or threats, as well as misrepresentations by collectors on how much time they have to file a civil claim against you.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.
What Happens if my Debt is Sold to a Collection Agency?
When taking out a loan or line of credit, you make a promise to a lender to pay back the entire amount loaned, plus interest. Usually having a predetermined date for payments, you are supposed to pay back a certain amount each week or month, depending on your terms of agreement. Lenders should also notify you on when and how they will contact you if your payments are late, whether it’s by telephone or email. If you do stop making payments, lenders or credit card companies will try to collect from you directly. Beginning with an overdue notice on your bank statement, the lender will later escalate to phone calls, emails, and other forms of contact. How many times and how often the lender or credit card company will attempt to contact you is highly dependent on the lender and how they go about dealing with delinquent accounts.
Learn all about the debt collection process in Canada, here .
After you’ve received several late payment notifications and you have not responded or made a payment, it may be time for your creditors to take a serious and more intense approach. Once an invoice is 90 days past due or more, lenders and credit card companies will not hesitate to add more pressure. At this point, if all notices were made properly, in a timely manner, and you’ve ignored all calls and warnings, there are two final ways for creditors to proceed.
Legal action implies taking you, the borrower, to court and suing you for not paying. With an advance notice and enough time to prepare, you will receive a formal notification in the mail or in person, including the court date and all other details of your hearing. It is important not to miss this court date, as your debt collectors pray you do. This is because if you miss the proceedings, the collection agency gets a default judgment and can start collecting on the unpaid debt. Court action can lead to money being directly taken from your paycheck (this is called wage garnishment, click here to learn more) or having your assets seized. So, do not ignore your debts, because they will not disappear. Keep in mind that the legal option is a very lengthy process, involving hours of paperwork, wait times and notices, so it’s not ideal for creditors. However, if you refuse to pay after months of notifications, they will pursue legal action.
In order to minimize their losses, your creditor will try to collect as much as possible from you. Sending outstanding debt accounts to a business that focuses and specializes in the collection of unpaid accounts may be the best way to do so.
When your debt is sold to a collection agency, the responsibility of collecting your debt is transferred from the lender to a large debt collection company. A collection agency is a business that concentrates on collecting debts owed by individuals or businesses. When lenders or credit card companies are unable to gather money you owe to them, they often hire agents from these collection agencies to pursue those whose payments are past due or their accounts are in default. These agents are much more aggressive and persistent than lenders or credit card companies, thus it is important to know your rights . With more phone calls, notices, the collection agency will be determined to collect your bad debt.
Collection companies can either directly buy an account that’s in default or they can be hired by a credit company to collect a debt. Either way, these companies that collect outstanding accounts for lenders make money, it’s not a free service. When a creditor needs to hire a debt collection agency to handle delinquent accounts, they will typically agree to a set fee. Debt collection agencies can also buy delinquent debt cheaply and then try to collect an amount, from the debtor, that is larger than what they paid for it. The more they retrieve, the more they earn.
Do you have “old” debt? Check out this article and learn about how re-aged debt could affect you.
If a collection agent is closely following you, try to pay the full amount you owe in order to avoid further communication. If you are unable to pay the full amount, get in contact with the agent and try to explain your situation. Ask if you can make a new agreement with the agency and get it in writing for proof. In addition, never send cash, as you want a receipt for every transaction with the agency.
Banks and lending institutions anticipate that a portion of their loans will not be collectible. But, before they write off your account, they would like to recover as much as possible. To do so, they either pursue legal action or use collection agencies. Using collection agencies is a last resort, but can help creditors gather as much money from you as possible. Additionally, it is important to know your rights when it comes to collection agencies. If your creditor has sold your debt to a collection agency, you have the right to know and should be notified in writing. It is very unusual for a delinquent credit account to be sold to more than one collection agency. However, it’s not impossible. Your account can begin with one collection agency and then be transferred to another. Thus, before making a payment, it’s important to always ask whom you are speaking with and if they have proof that they are authorized to collect from you.
Know Your Rights – 12 Common Debt Collection Law Questions Answered
What happens when you are sued by a debt collector? How do you respond to a debt collection letter? How long can a debt be collected for?
While it may feel like the end of the world to you, being sued by a debt collector is a routine occurrence in courts across the country. Most debt collection law firms file hundreds of lawsuits a day and 99% of defendants will not answer.
There is a world of questions around debt collection laws and how best to protect yourself from being hounded by multiple collection agencies for the same debt or “zombie debts,” that may show up in court years after the debtor defaulted.
Even when debts are legitimate, the additional costs that result from a lawsuit can make it much harder for the borrower to resolve the debt.
With so many questions on the topic sent to us daily, we thought we would summarize the top 12 that come up most often…
The best way to start is to hire a debt collection attorney. This will give you the best opportunity to beat the debt collectors in court and they will know the exact processes to go through to give you the best chances of succeeding.
Fundamentally, when it comes to court, the collection company will need to actively prove the case, this means the collector will need to provide proof of the following:
- That you signed the application
- The entity suing you has the right to collect on the debt
- The balance claimed as being due is calculated properly
- The loan has not been rendered unenforceable due to the expiration of the statute of limitations
If the creditor is a company that’s bought the debt, that debt buyer must have proof in the form of the note or billing statements to back up their claims.
2. How do I pay off debt in collections?
A debt in collections will damage your credit score and leave you open to harassing nuisance phone calls from debt collectors. Paying it off can get debt collectors off your back and put you on the path to rebuilding your credit score and reclaiming your finances, thus becoming more stable.
Before you make a payment on a debt, first determine whether it’s past the statute of limitations so you can handle it properly.
If it’s not, there are three main options available to pay off a debt in collections:
- Create a payment plan
- Pay it off in one lump sum
- Negotiate a settlement
Creating a payment plan lets you set a payment schedule and amount that works for your budget, this may be negotiated with the debt collector to be a manageable amount within your current financial situation. It can also lead to the debt being marked “paid in full” on your credit reports, which can offset some of the damage done by delinquent debt.
If you come into money through inheritance or a tax refund, or if you can work to earn the money quickly, paying off the debt with a single payment can resolve your debt collection woes efficiently. Although, when paying off debt in full, make sure you keep this proof of payment to safeguard against incidents where the payment isn’t recorded correctly or the debt gets resold to another collector.
Negotiating a settlement for a single payment of less than you originally owed may also make the debt easier to pay off. Negotiating a settlement takes time, persuasion and caution. Explain to the creditor why you can’t make full payment. The larger the debt – and the longer it’s been in collections – the more likely the creditor is to accept a settlement.
The length of time a debt can be collected is determined by the statute of limitations (SOL) of debt collection which varies (greatly) by state.
Typically, the statute of limitations starts when you miss your first payment with the original creditor. It does not start when the account was placed for collection. If a debt collector tried to sue you after this time period has expired, you can raise the SOL as a defense against the lawsuit.
If your debt is outside the statute of limitations in your state, the credit report dispute process is relatively simple. Simply write a letter to the credit bureau saying you are disputing the information because it is outdated.
Send your letter via certified mail with a return receipt requested so you’ll have proof of the date the letter was sent and a signature from the person who received it. If the credit bureau doesn’t respond within thirty (30) days, they’re in violation of the Fair Credit Reporting Act. The certified mail receipt will help if you decide to involve the Federal Trade Commission or file a lawsuit against the credit agency.
As long as the dates on your credit report show that the old account should have already been removed, your dispute should go smoothly.
The Fair Debt Collection Practices Act (FDCPA) is a federal law that provides limitations on what debt collectors can do when collecting certain types of debt. The FDCPA covers how debt collection is reported in credit reports; as previously mentioned there are state laws that provide various other protections. The FDCPA prohibits debt collection companies from using abusive, unfair or deceptive practices to collect debts from you.
The FDCPA covers the collection of:
- Credit cards
- Medical debts
- Other debts mainly for personal, family, or household purposes.
The FDCPA does not cover business debts. It also does not generally cover collection by the original creditor to whom you first became indebted. Under the FDCPA, debt collectors include collection agencies, debt buyers, and lawyers who regularly collect debts as part of their business.
For the full text of the Fair Debt Collection Practices Act, you can read it here.
Your FDCPA dispute rights are a powerful. Within thirty (30) days of receiving the written notice of debt, send a written dispute to the debt collection agency. Once you dispute the debt, the debt collector must stop all debt collection activities until it sends you verification of the debt. If the debt collector can’t provide you with that proof, should never bother you again.
As with all dispute letters, you should keep a copy of the letter for your records. Also, it is a good idea to send the letter certified mail, return receipt requested, so you have proof that the debt collector received it.
You can dispute the debt over the telephone, but the debt collector will be allowed to continue debt collection activities and will not have to verify the debt. If you want to assert your right to verify the debt, you must send a letter.
6. How do debt collection agencies find you?
Just because a collection agency calls or writes to you, they don’t necessarily know where you live, especially if you’ve moved since you transacted business with the original creditor. All the bill collector knows is that it mailed a letter or left a phone message that wasn’t returned.
Here are the four main ways a collection agency uses to find people:
- Information on your credit application. The original creditor provides the collection agency with the information on your credit application. If you’ve moved, someone listed on the application (employer, bank, credit references, or nearest living relative) may know where you are.
- Relatives, friends, employers, and neighbors. Collection agents often call relatives, friends, employers, or neighbors, posing as a friend or relative. However, federal law limits these types of calls.
- Phone books, phone directories, printed or online, are good sources of names, addresses, and phone numbers. If a collection agency has your phone number, it may be able to find your address using a reverse directory. A reverse directory lists telephone numbers in numeric order, rather than by name.
- Post office. The agency may check the post office for a forwarding address. Also, major credit bureaus with their own collection agencies receive change-of-address information each month from the U.S. Postal Service.
Before negotiating a settlement with a debt collector, learn about the debt and plan for making a realistic proposal.
To get ready to negotiate a settlement or repayment agreement with a debt collector, consider this three-step approach:
- Learn about the debt
- Plan for making a realistic repayment or settlement proposal
- Negotiate a realistic agreement with the debt collector
Memorialize your agreement! Sometimes, debt collectors and consumers don’t remember their conversations the same way. If you agree to a repayment or settlement plan, record the plan and the debt collector’s promises. Those promises may include stopping collection efforts and ending or forgiving the debt once you have completed these payments. Get it in writing before you make a payment.
8. What happens when your debt goes to collections?
If you ignore the creditor’s letters and phone calls, you are unable to work out an agreement to repay or settle the debt, or you set up a repayment schedule but fail to make the payments, your bill will most likely be turned over to a collection agency or sold to a debt buyer, and your delinquency reported to a credit bureau. This will probably take place within three to six months after you default.
By taking some time to understand how collection agencies operate, you’ll know how to respond when they contact you so that you can negotiate a payment plan or get the agency off your back.
Your original creditor will have sold your debt to a collection agency for a much smaller amount of the debt, but they make their money by recovering the debt for more than they paid for it.
Buying debts has become a huge business for collection agencies. Especially if your debt is old, you are likely to find yourself dealing with someone who has bought a bundle of debts for pennies on the dollar. Because the collector may not have any of the original credit documents and only a computer printout of the debt, the information it has may very well be incorrect. It may even have bought the debt from a previous debt collector, not the original creditor, which increases the likelihood that the collector doesn’t have accurate information about the debt.
Collection agents get paid for results—i.e. collecting money from consumers. There is no extra fee for favorable reviews or consumer satisfaction because the consumer is not the client. Some earn high salaries. Other companies pay their collectors meager wages, plus commissions, which means you may be called by a stressed-out, rude collector who doesn’t much care what the law allows.
A collection results from a debt not being paid on time. Usually, the debt is significantly delinquent – more than 180 days late. When a debt goes into collections, the original lender of credit often assigns or sells the debt to a debt collector, such as a collection agency.
The debt collector – the person or company that collects debts owed – then tries to collect the debt from the borrower.
The easiest way to find out if you have a debt in collections is to pull a copy of your annual free credit report. Most collection agencies report to at least one of the three major credit bureaus – Experian, Equifax and TransUnion.
The collection agency might only report to one of the credit bureaus, so you want to cover all your bases by checking all three credit reports. Any account that is in collections will be marked with a “collection” status.
Once you’ve found who your debt is with, you’ll need to contact the credit agency. Your credit report might contain the name and contact information of the agency trying to collect the debt. Check the reports from all three credit reporting agencies in case there is conflicting or missing information on any of your credit reports.
10. How to respond to a summons for debt collection?
Once the initial shock and panic of being sued by a debt buyer wears off you’ve probably thought to yourself, “now what in the world do I do!?”.
Doing nothing may result in a final judgment, wage garnishment, and other financial problems. If a debt buyer has sued you, your first step is to hire an attorney to put together a timely response to the complaint.
At this stage you likely have two documents, the Complaint, and Summons:
Summons: The Summons is the document that should have been served on you by the process server when they originally dropped off the lawsuit. This document is important because it will tell you exactly how many days you have to submit your response to the court. Once you get the Summons make sure you write down on your calendar when the deadline is to respond. You don’t want to miss this deadline!
Complaint: The Complaint is what most people consider the “lawsuit”. A good way to look at the Complaint is as a list of allegations the plaintiff (the person/company suing you) has against the defendant (you). At this point nothing has been proven, it is just a list of allegations.
11. How much do collection agencies pay for bad debt?
To give you some background on how debt collectors operate; bad debt companies pay or receive literally pennies on the dollar for the debts they are trying to collect. The amount that companies pay for bad debt depends on the type of account and its age.
Some typical considerations for a debt collector’s purchase of a debt are:
- Debts that have recently been charged off: 6 to 7 cents on the dollar.
- Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar.
- Many years-old, out-of-statute debts: A penny or less.
12. Who enforces the fair debt collection practices act?
Consumer litigation attorneys along with the Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from you.
To contact a debt collection attorney to assist you with a potential FDCPA case or other consumer claim contact Zerbersky Payne to discuss your options.
Additionally, some states such as Florida, have their own debt collection laws and regulations. These state laws are enforced by consumer protection attorneys as well as the State regulating body for that particular state.