3rd Party Clout

A SURVIVOR'S GUIDE: A/R Management in this New Economy
3rd Party Clout

The easiest way to go out of business is through an escalating loss of revenue. Revenue is what you use to pay all your bills. A/R is nothing more than revenue that has not been received yet.

Once you have exhausted all your internal efforts with respect to collecting on a past due account, third party help may be in order. Learn what type of third party to use and the key factors to consider in selecting the right company.

The easiest way to go out of business is through an escalating loss of revenue. Revenue is what you use to pay all your bills. A/R is nothing more than revenue that has not been received yet.

The easiest way to go out of business is through an escalating loss of revenue. Revenue is what you use to pay all your bills. A/R is nothing more than revenue that has not been received yet. A/R obviously poses risk to the company to which the money is owed. It is a calculated risk when it is a result of a credit extension policy. If the A/R is created by something like a bad check or charge back, it is obviously more serious.

In either case, controlling A/R delinquency is of paramount importance to the financial well being of your business.

Third Party Clout:
Third party clout is a term used to define the impact that is made when a third party handles an issue on behalf of their client. The fact you have enlisted the help of a third party sends a message to the debtor that you are in fact serious about the issue at hand and that you have elevated the situation to another level.

There is a correlating psychological effect on the debtor. Their reaction may be to decide that they should address the problem responsibly, or they may react negatively. In either case, the third party you have employed should be adept at dealing with either reaction.

When Should Third Party Assistance be Considered?:
Leaving more messages or making more arrangements will most likely result in the same outcome {/quotes}Once you have exhausted all your internal efforts with respect to collecting on a past due account, third party help may be in order. As pointed out in earlier articles, once you have a situation that is 90 days in arrears and you are not moving forward with a resolution (i.e. calls are not being returned, payment arrangements or promises for payment are broken), you should consider enlisting a third party for help in collecting the debt.  Leaving more messages or making more arrangements will most likely result in the same outcome.

The Collectability Curve:
The peak in a collectability curve is at the beginning. The collectability curve is different in form/shape than to a bell curve. While the peak of a bell curve is in the middle, the peak in a collectability curve is at the beginning. Collectability of a debt is highest in the early stages and drops precipitously as the debt ages. Once you have reached the 30 day mark on the curve the chances of collectability drop considerably. When third party clout is employed the collectability curve resets and in essence a new curve starts with the greatest chance of collectability at the beginning of the curve.

Attorneys:
Attorneys can be of help to a business with bad debt as they are the epitome of third party clout. If your intent is to immediately litigate, then an attorney is the most logical option but can be costly.

Attorneys usually work on an hourly basis and will almost always require a retainer up front. They may work on a contingency basis if the case is large enough and they feel there is a good change of getting their money through the process.

Most attorneys will send a demand letter and then file a lawsuit if there is no response to the letter. Obtaining a judgment is their goal.

The problem is that obtaining a judgment is not necessarily going to result in any money coming to you unless you can locate and attach, or liquidate the debtor's assets. Attorneys do not normally do this unless they utilize a private investigator. These investigative costs would then be billed to you.

Collection Agencies:
Collection agencies almost always work on a contingency basis, keeping you from "throwing good money after bad" Unlike attorneys, collection agencies almost always work on a contingency basis. This means they only get paid if they recover money for their client. This keeps you from "throwing good money after bad".

Another advantage to utilizing a collection agency is that they actively work an account with litigation usually reserved as a last resort. Most agencies will handle litigation for their clients on a contingency basis which means you won't be responsible for attorneys' fees or a retainer if the account goes to litigation.

Full service agencies provide additional services to their clients that help facilitate the collection process. Some of these services include skip tracing, asset investigations, letter writing, check clearing, and in some cases software sharing. These services are an integral part of the collection process and greatly increase the possibility of a successful result.

Some Warning Signs You Should Look For in An Account Before Considering Third Party Assistance:

• 60-90 days outside terms

• Unreturned calls

• Broken promises to pay

• Returned mail

Using a third party as an extension of your in-house A/R can allow you to focus on accounts that are not yet seriously delinquent. Focusing on early aging will ultimately result in less serious aging issues and will increase cash flow.

David Zibman is a senior account representative with C2C Resources, LLC.
C2C Resources, LLC is a global commercial collection agency headquartered in Atlanta, Georgia. If you would like a free sample credit application and personal guarantee please email This e-mail address is being protected from spambots. You need JavaScript enabled to view it . C2C resources collects commercial debt on behalf of their over 17,000 clients and is considered one of the top agencies in the country.  C2C only gets paid for success. If no money is collected; no money is earned by C2C. This includes litigation. C2C also provides its clients with free tools to assist them in managing their own A/R internally. Partner with C2C by calling 1-866-495-0050, ext. 355.