3 Rules to Follow When Collecting American Debt

3 Rules to Follow When Collecting American Debt

Lack of Checks and Balances Can Have Devastating Consequences

      In business freedom from onerous legislation and red tape can make for simple, fast transactions. Unfortunately sometimes not all participants are in business for the right reasons and a few bad operators can spoil it for everyone.

      While the U.S. economy is founded on the principle that “the best type of government is one that governs the least”, over the years many states have realized that some basic rules and principles were needed when considering credit-related transactions. Having a basic understanding of the laws and how certain states apply or not apply them can greatly enhance your chances of success while avoiding potentially dangerous pitfalls.

Is Your Company Serious About Doing Business in The USA?

      If your company is committed to long-term sustainable business with American markets, the first rule when collecting from your US customer is to hire an American collection agency that adheres to the Fair Debt Collection Practices Act (FDCPA). We do not recommend using a Canadian-based agency to act for you in the U.S.A. If the Canadian agency does not exactly follow the FDCPA, your firm runs a very high risk of being sued by the debtor’s attorney. There are literally hundreds of U.S. attorneys who maintain very profitable practices suing collection agencies and creditors who do not follow the FDCPA. A competent U.S. collection agency is well versed on the FDCPA and will significantly reduce the legal risk to its clients. An excellent source of reputable U.S. collection agencies may be found through the collection industries professional association, ACA International (www.acainternational.org).

Insured Trust Funds

      The second rule of hiring a U.S. collection agency is to ensure the agency is properly licensed, bonded and maintains a separate Clients Trust account. Unlike Canada where every agency is legislated to be bonded and maintain trust accounts – several states do not require client bonds or separate trust accounts. Using an agency in these states could lead to difficulties collecting from your collection agency! The State of Michigan requires that the amount of the client bond be reviewed annually increasing or decreasing according to the monthly average of funds flowing through the trust account. The bond acts as an insurance policy that if the agency does not remit trust funds – a creditor may apply to the bond to receive their trust money. Unfortunately the news headlines are filled with horror stories of missing trust money.

Insurance Against Law Suits

      The third rule of collecting from U.S. customers is to find ways to minimize the risk of litigation. Using a U.S. collection agency is a good start. Conscientious agencies that are serious about protecting their clients from frivolous law suits maintain professional liability insurance (Errors & Omissions). When choosing a U.S. agency, ask to see a copy of their Errors & Omissions policy. If litigation results from the agencies actions, the Errors & Omissions insurance will pay an attorney to defend you.

      Following these three simple rules when considering a collection agency for your American receivables will go along way to ensure your company is well represented with minimal reputational risk.

About the author: A 26 year collection industry veteran, Brad J. Lohner owns both   American and Canadian collection agency providing services to credit grantors on both sides of the border. Specializing in the wholesale distribution, telecom, business services, utilities and transportation markets Brad’s firms administer high volume – high balance business to business portfolios.