Friday, October 25, 2013

Maximize Your Recoveries via Collection Agency Credit Reporting

Most collection agencies today report your slow-paying customers to either Equifax or Trans Union, Canada’s best known credit bureaus. While this collection tool does result in some added recoveries, the extra income can be easily offset due to inaccurate credit reporting. 

To maximize recoveries with credit reports, credit grantors (you) can help by providing your collection agency with the following data upon assignment of a case: 

  • Full name of customer
  • Address or last known address (in full)
  • Date of birth and/or SIN#
  • Original date of debt
  • Date of first delinquency
The reason this information is so vital is so the agency can ensure your collection ends up on your customers bureau. If this data is not provided, both credit bureaus will not accept the file into their system. Credit bureaus must accurately reflect the status of a collection item. Information such as charge date and delinquency date play a huge roll in accurate credit reports as it impacts the statute of limitations, or how long a credit bureau is allowed to report the negative data.

So when your collection agency requests this data from you, it is not because they want to make more work for you, it is because they must strive to be a compliant furnisher of data to the credit bureau. Otherwise, consumers and corporate customers alike have the right to challenge the report and even seek legal damages if erroneous credit reporting damages them financially.

In addition to accurate data, another way to maximize recovery is to check to see if your agency report to Canada’s other regional credit bureaus. There are several other credit reporting agencies in Canada, including: Credifax, DNB Canada, Lumbermen’s, Sterling West, and Group Echo.

Accurate credit reporting can greatly enhance the recovery of your money.  Make sure the collection agency you choose is reporting to as many of these credit bureaus as possible.

The Non-Payment Trifecta

Over the 29 years I’ve spent in the accounts receivable management industry, the vast majority of reasons a creditor experiences a slow-paying customer boils down to one of three issues: They are:

1.       Sticker Shock/Dispute

Take for example an I.T. company that is contracted to install a new software application. Only after the installation does the software company realize that the customers network is not configured correctly, requiring the customer to either abandon the purchase or upgrade some hardware. Either decision will cost the customer money they hadn’t expected. The same scenario plays out all over North America each day and affects every industry. Therefore it is absolutely vital that creditors work very hard to manage expectations early in the relationship.

2.       Invoice Inconsistencies

Many large customers are now automating their accounts payable systems to save themselves money through the outsourcing of this back office function. These automated systems are all different requiring suppliers to become subject matter experts on their customer’s payable systems! If your invoice isn’t coded correctly or doesn’t contain certain signatures or purchase order numbers, the customer doesn’t call you to ask for help. They simply leave you to figure that out for yourself. This process causes payment delays to your invoice. And once your invoice is received correctly then the customer takes another 30 days to pay.

3.       Simple Pressure Required

The third involves a customer who is initially delaying paying your invoice due to a cash flow problem. This customer knows that trade credit is much easier to get than bank credit, so he uses his suppliers as his bank. Often a polite but firm telephone call is all that is required to receive your payment; however this customer’s financial situation may be more precarious than even he anticipates. In this case the creditor who acts first – gets paid and those who wait – don’t.

More and more companies are embracing the idea of outsourcing their credit and accounts receivable management functions rather than maintaining staff, lease space, technology, and training on their own. Should you consider outsourcing your credit and accounts receivable functions – it is vital that your provider clearly understands the above-noted concepts and can skillfully navigate their way to obtaining payment and serving your customer or help you to quickly identify a problem customer and guide you to consider the appropriate actions before it is too late.

About The Author: Brad Lohner is a 29 year veteran in the accounts receivable management industry in North America. He owns Credit Process Advisors, a credit and collections consulting company, as well as two commercial debt collection agencies in the USA and Canada, along with Lien-Pro® Canada’s only construction lien filing firm.