Debt collecting.docx

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All About/Debt Collection; PersuadingPeople to Pay Their Bills During Hard

Times Debt collectors, the enforcers of the credit world, have long been plagued by a reputation asunscrupulous thugs who work in fly-by-night operations and delight in pouncing on peoplewhen times are tough.

But the debt-collection industry says it has been misunderstood and unappreciated. Today'sdebt collector, industry executives assert, is a well-educated and courteous professional whois regulated by strict laws and uses the latest technology to perform a vital service in a credit-driven economy.

To be sure, the business has undergone fundamental changes in the last two decades that haveimproved its reputation, regulators say. Nationwide companies with hundreds of closelysupervised collectors and computerized operations have arisen from an industry oncecomprised exclusively of small firms serving businesses in their neighborhoods.

The American Collectors Association, a 3,600-member trade group, has worked to pass lawsregulating the business. It has also sponsored a campaign to educate collection agencies about

proper conduct and the public about its rights -- all in the interests of making people moreagreeable if collectors come calling.

These changes came just in time for agencies to benefit from the debt-clogged 1980's. Theindustry has expanded rapidly in recent years; collectors handled $66.5 billion in debts in1990, up from $14.5 billion in 1980, the association said.

But even Linda Russell, the association's president, acknowledges that no matter how muchthe industry reforms, debt collectors will be unpopular and unwelcome to much of the public.That is particularly true in the current recession, when more and more people have fallen

behind in their payments and debts are more difficult to collect.

"I think the debt-collecting industry is a lot more understood now than it used to be," said

Mrs. Russell, chief executive of CollectionCenter Inc., a privately owned agency, which is based in Rawlins, Wyo., and employs 31 collectors in five offices.

"But I guarantee you that there are many, many people who will never understand what it is,"she said. "People feel very distressed when someone reminds them of their debts. And I don'tthink there is a thing that we can do to change that."

Modern-Day Collectors Politeness and Some Psychology

The 6,000 or so collection agencies in the United States typically work on commission,earning about 25 percent to 35 percent of what they collect for businesses that give them"listings" of people behind in their payments. Collectors working for agencies are usually

paid a salary and a commission, which varies from company to company.



Industry executives say their clients are divided into four major groups: health care, includinghospitals and doctors' offices; retail businesses, including department stores and credit-cardcompanies; utilities, and commercial accounts, for businesses owing money to businesses.

After receiving a listing, the collection agency writes to the debtor, explaining that it has been

given the account and requesting the money owed. This step can be complicated, though, forit is often difficult to find the debtor's address.

In the past, collectors often visited debtors' homes. But to cut costs, most now use the phone.Some agencies have developed sophisticated strategies for talking to debtors; some haveemployed industrial psychologists to devise scripts. But in general, most agencies tell theircollectors simply to be polite and sympathetic.

"You don't collect bills by screaming at someone," said James R. Bohmann, a senior vice president at Payco American, the largest agency in the country. "You collect bills byunderstanding people."

The debtor usually does not pay immediately, prompting the collector to try to fashion a payment plan. Eventually, many agencies will threaten to sue a debtor.

"There are two things collectors look for: ability and willingness," said George Goodyear 3d,the president of Goodyear & Associates, a privately owned agency in Charlotte, N.C., thatemploys 34 collectors.

"If the consumer-debtor has the ability to pay, then almost everyone would say that he or sheshould pay," he said. "If he or she does not have the ability, but does have the willingness, wewill work out a solution."

Debt collectors are regulated by the Fair Debt Collection Practices Act, which is administered by the Federal Trade Commission. Under the 1977 act, collectors cannot threaten debtors, lieto them or call them at inappropriate times, like the middle of the night. Conversations andcorrespondence with debtors are confidential. And debtors can tell collectors to stopcontacting them.

Industry executives and regulators say the debt act has helped reduce the instances of some ofthe industry's more unsavory practices -- like threatening phone calls or harassment ofdebtors' employers or families.

David Medine, an acting associate director at the F.T.C., said the agency does not keep trackof how many complaints it receives. But he said there had been a "significant downwardtrend" in the last decade.

"Some of the worst abuses that were widespread have been reduced," he said. "Across the board, I think that there probably has been improvement, though it certainly has not beenuniform."

Computer Helpers They Keep Records And Dial the Phone

Twenty years ago, the office of a typical collection agency was awash in note cards recordingeach time a debtor was contacted or payment was made. That changed in the early 1980's,



when agencies began using computers to maintain files on debtors, call them and search fortheir addresses.

These days, the offices of companies like Payco American seem like huge data processingcenters. At Payco's headquarters in Brookfield, Wis., nearly 100 collectors work on

computers linked to a mainframe system the company spent $20 million designing.

Payco, a publicly traded company with $106.3 million in revenues last year, had profits of$5.42 million, a 34 percent increase from the previous year. Payco uses the system to monitoraccounts at its more than 40 offices and to set work standards for its 2,500 employees. Whenthe company receives a list of debtors, the computer automatically sends the accounts tocollectors who specialize in areas like transportation, health care, student loans or creditcards.

At Nationwide Credit, an Atlanta-based company with 11 offices and 900 collectors,automatic dialers call debtors until the phone is answered; at that point, the call is sent to acollector and the debtor's file appears on the collector's computer screen. The system freescollectors from wasting time with busy signals or calls to people who are not home.

To find addresses, agencies also use computers to access "skip tracers" -- national data baseswith information gleaned from telephone directories, subscription houses and voterregistration files.

A Time of Debt During a Recession, It's Harder to Collect

Though collection agencies profit from financial misfortune, most do not like recessions. Thenumber of people owing money may increase -- drastically in some areas of the country; butat the same time, debtors' ability to make payments declines, forcing collectors to work muchharder.

So while collection agencies may not be suffering as much as other businesses in the currentrecession, most are not reaping any windfalls. The number of people paying off debts toagencies fell from 21 percent of listings in 1988 to 18.3 percent last year, the AmericanCollectors Association said.

"We're getting more of it, but it's less collectible," said Larry Sheridan, a vice president at Nationwide Credit, which is a subsidiary of First Financial Management Corporation, a

publicly traded company. "People think that because there is more business coming to theagency, we should be doing better. But we're not doing any better than before."

Mr. Sheridan said Nationwide's revenues had declined in 1990 and 1991, but did not give thefigures, which First Financial does not disclose separately.

Mrs. Russell said small agencies were running into trouble because struggling businesseshave withheld listings rather than pay collectors' fees. But she said in the long run, the smallagencies would not be harmed or swallowed up by the bigger ones.

"There is a market niche for each of us," she said. "The Paycos will get the large national

firms. But there are a lot small businesses that are much more responsive to dealing with



someone who is also a local business person. What we return to small businesses might makethe difference in whether they survive or not."

Mrs. Russell -- who cheerfully acknowledges that she does not fit the stereotype of the debtcollector as a "rough-talking large male who browbeats people" -- said she hoped the

industry's ability to weather the recession would encourage more people to becomecollectors.

"Contrary to popular image, it's a fun job, because you deal with people," she said. "And thereal fun is that you can tell when you are a success."

HOSPITALS MAKE GREAT CUSTOMERS

In the days when most doctors made house calls, hospitals and medical offices rarely hireddebt collectors. But as health care costs have soared in recent years, more and more peopleare having trouble paying for medical care, forcing more billing departments to hirecollection agencies.

The health care market for debt collectors has grown so much in the last decade that manyagencies now consider it their No. 1 source of clients.

James R. Bohmann, a senior vice president at Payco American Inc., called the increase"dramatic." He said many hospitals, facing strong competition, found that in the past theywere losing money because too many bills went unpaid.

"What is occurring is that there used to be inefficiencies in the cash-flow process in the healthcare system," Mr. Bohmann said. "They have to be better managers of their cash flow. Theycan't afford to make interest-free loans."

George Arges, a senior policy analyst at the American Hospital Association, said manyhospitals have become bogged down in compiling and mailing bills as they try to meet thespecific requirements of the more than 5,000 insurance companies in the United States.

"You're spending more resources trying to send out billing information," he said. "It's verytime-consuming. Hospitals don't have the staff to follow up and collect the money as well."

The growth of this market has led agencies to train collectors who specialize in deciphering

complicated medical bills so they can better serve clients and have more of a chance of persuading debtors to pay.

6 Secrets to Getting Debtors to Pay Up

“Some people use one half their ingenuity to get into debt, and the other half to avoid paying it.” – George D. Prentice



Immediately after finishing college, I fell into a job that I was not happy with. At the time, Ihad no idea that it was going to provide me with a valuable skill – one that would help meavoid losing thousands of dollars and also give me the chance to help others protectthemselves against monetary losses.

The industry I’d fallen into was the “rent to own” business. As an “account manager,” Iworked in the field to collect delinquent payments.

Our customers were people who didn’t have enough cash or credit to buy things liketelevisions, stereos, refrigerators, etc. As you might imagine, the majority of them were in afairly low income bracket and had a default rate that would make a bank loan officer faint.

At first I thought it was going to be impossible to collect from these people, and that I wassure to be fired. Fortunately for me, the president of the company took me under his wing toteach me the ropes. And I discovered that collecting money from people is really just a formof salesmanship.

When you contact people about paying you money they owe, they are, understandably, goingto be disagreeable. Their natural reaction will be to respond to your request for payment withanger, and you can end up in a nasty confrontation. Although it’s sometimes possible to arguea debtor into paying up, my mentor taught me that it’s much easier – and more pleasant – touse the art of persuasion.

One technique he taught me was to start my conversation with the debtor by asking why hehadn’t paid. And during the three years I worked for him, I never once had someone tell mehe didn’t pay because he’s a no -good deadbeat.

There was always a reason. Many had lost their jobs, had unexpected car repairs, or werefighting a debilitating illness that was draining all their financial resources. Others just didn’tknow how to handle their money responsibly, and kept blowing their paychecks on thingsthey really couldn’t afford. But it didn’t matter what the reason was. Because I listenedsympathetically, they felt that I understood their situation. And that made it possible for us tocalmly and rationally come up with a plan for them to pay what they owed.

After leaving that job, I took on a collection job for a high-end jewelry retailer – and Idiscovered that the same techniques that I’d perfected in the rent -to-own business workedwith white-collar debtors who had good credit and upscale lifestyles. Once again, I was able

to maintain a very high success rate without much trouble.

One extremely effective strategy that I used was to call people at their jobs. The great thingabout calling someone at work is that it’s hard for them to dod ge the call without divulging totheir co- workers or boss that they’re in debt and someone is trying to collect from them.

Now, I should warn you that there are laws regarding what’s legal and what’s not legal whenyou’re trying to collect money. If you vi olate those laws, you can end up being liable forsignificant civil damages. I’m not a lawyer and am not dispensing legal advice here, but myunderstanding is that it is perfectly within your rights to call a debtor at work as long as youdon’t discuss their debt with anyone else there or don’t do anything that could be reasonably

seen as jeopardizing their job.



I developed a large arsenal of highly effective collection techniques – and even when I wasno longer officially in the collection business, they were very helpful to me as a small-

business owner, as a landlord, and as someone who likes to help out friends and familymembers when they have a problem. (I’ll never forget my mom’s smile as she thanked me forhelping her collect several thousand dollars that a former employer owed her.)

Certainly, there are formal steps you can take to collect money that people owe you – liketaking them to small claims court or hiring a lawyer – but it is often not worth the expenseand effort. However, if all it takes is a few calls or a letter, it can make sense for you to goafter even relatively small debts.

Here are the basic steps to collecting what’s owed to you, whether it’s a business or a personal debt:

Determine when you’ll start to take action against the debt or.

You don’t want to bring down the hammer on a friend who borrowed 20 bucks just becausehe hasn’t paid you back within two weeks, or on a good customer just because he’s a littlelate with a payment. As soon as you start going after your money, your relationship is goingto turn into an adversarial one. So, chances are, you’re going to lose that friend or customer.

But at some point, even in cases like those, you’re going to have to try to collect. Thequestion is when? After 30 days? 60 days? 90 days? E very situation is different, so you’llhave to decide what makes sense.

Contact the debtor with a gentle reminder.

Your first contact with the debtor should be in the form of a gentle reminder, either by mailor on the phone. Say that you’re just making he’s aware that the debt hasn’t been paid. Thisapproach allows him to save face by claiming that he “didn’t know” or “forgot.” And, in fact,a certain percentage of debtors will pay up as soon as they realize that you don’t intend to letthe debt just vanish.

If the gentle reminder doesn’t work, the next step is to demand payment.

You’re no longer pretending that you think the debtor may just be confused. No need to behostile, but make it clear that you are rightly owed the money and you expect either (1) to be

paid immediately or (2) a definite commitment as to when payment will be rendered.

This will work with all but the most difficult debtors: those who honestly don’t have themoney or those who just don’t feel like paying.

If that doesn’t work – or if the debtor doesn’t keep his promise to pay by acertain date – you have to take an even stronger approach.

If he just doesn’t feel like paying, you have no choice. You’re probably going to have to takelegal action. But if he’s simply overextended and doesn’t have the money to pay all the billshe owes, you have to get yourself to the top of his list of priorities. How do you convince himto pay you before he pays someone else? By constantly contacting him – by phone, by letter,through e-mail, and maybe even by knocking on his door. Your persistence will pay off.



Collecting money isn’t fun, but you can be assertive without being threatening, and civilwithout being ineffective. It’s your money, so there is no reason to feel reluctant about using

bold tactics to collect it. And not having to write off losses from bad debts can make asignificant impact on your balance sheet.

[Ed. Note: Paul Lawrence is the creator of the Quick and Easy Microbusiness System , ETR's program for starting a business for under $100. Paul has put together a system that will allowyou to collect what you're owed without going to court or getting into intense conflicts withyour debtors.

The woman behind the women whoconvince people to pay up Sonia Ferlauto and her all-female team can't afford to be pushovers, writes Alison Aprhys.

Brawn has given way to brains in the business of recovering outstanding debts.

Think of debt collectors and images that might come to mind are of big blokes who use theirmuscle to threaten or intimidate defaulters into paying up.

But Sonia Ferlauto, director of Accelerated Collection Services, looks more like the boss of acosmetics empire.

Her efforts have resulted in the company winning not just praise from clients but many small business awards.

It has won two categories in the Australian Micro Business Awards and been a finalist in theTelstra Small Business Awards.

Ms Ferlauto agreed that in a traditionally male-dominated profession, ACS's all-woman teamwas as much a surprise as it was a success.

"Yes, it does challenge many people's perceptions," she said. "When I commenced businessin 1995 I didn't start out with an all-woman team in mind, it's just how it turned out."

The 2003 Sensis Business Index reported that a major concern for small- and medium-sized businesses was cash flow and late payment of bills. Bad debts cost Australian businesseshundreds of millions of dollars annually. In NSW more than $520 million was owed to publicsector agencies for goods and services rendered to businesses.

With consumer and corporate debt surpassing this figure many times over, it's no wonderdebt collection is big business.

"I didn't plan to be a debt collector," Ms Ferlauto said. "I came into the industry through aseries of office management roles and became interested in debt recovery."



Communication skills topped the list of desirable qualities for the collection business. "Youneed to be a good listener and a great negotiator," Ms Ferlauto said. "You are dealing with somany different types of personalities and you can't be a pushover."

Ms Ferlauto looks for staff who are highly organised and possess an eye for detail and the

ability to remain focused and calm. "Collecting money can be emotional," she said. "Ifsomeone owes you money and they are not paying up, it's easy for you to get angry. But wedon't get emotionally involved because it's our job to recover what's owed."

Ms Ferlauto said her greatest satisfaction was seeing the client paid. "People do get excitedwhen we contact them to say we have succeeded because, by the time it comes to us, theclient has done all they can and we are their last resort," she said.

However, if Ms Ferlauto does not collect she does not get paid.

Ean Joyce co-ordinates the primary course covering debt collection the Financial Services(Commercial Agency) Certificate III at Blacktown TAFE.

"We have been running the course at Blacktown since 1989," he said.

Students with the ability to be analytical and persistent and those who could "read" peoplewere most likely to succeed. Certificate modules included data retrieval, health and safety,workplace documents, law for commercial agents and trust accounting.

Debt Collector KSA - Knowledge, Skills,

and Abilities A debt collector spends most of their time on the telephone. The most important skill in acollector's repertoire is verbal communication. Negotiating payment arrangements on pastdue accounts is the core of the collector's job.

Being able to articulate well, provide clear, concise response and instruction is integral to a

collector's success.

Understanding information and ideas verbally and presenting information and ideas verbally

is a core skill for debt collectors. Therefore, the ability to speak clearly is important. Activelistening skills are extremely important, as they will inform what assets are available to usefor repayment, and will benefit the development of rapport with the borrower, which is

beneficial to any negotiation.

Emotional intelligence is necessary. Interpersonal communication skills are constantly in play. The so the ability to react professionally to irate or abusive individuals is essential. Acollector should have the ability to perceive unfavorable conditions and have the capacity toidentify and initiate alternatives to circumvent such situations. A collector should be able to

perceive social situations and react accordingly.

Reading comprehension and writing skills are valuable. A collector will be required todocument accounts in a clear concise manner as well as understand written instruction or



comprehend correspondence in order to respond appropriately. Understanding informationand written ideas and presenting written information and ideas is also a core skill for debtcollectors. Critical thinking, decision making, and learning skills are helpful.

Time management and personal management skills are essential. Debt Collections is a

production based job, so the ability to manage the available time to perform the job functionsof a debt collector is necessary. Time management also comes into play with scheduling andfollowing up on payment arrangements. Time management is important to understanding thetime sensitivity of account requirements that may be in effect. Furthermore, success in debtcollections is dependent on the capability to adhere to work schedules.

Typing, 10 key by touch, and data entry skills are useful. Experience with businessapplications on computer systems is beneficial. The ability to type and talk is a useful skill.Basic math skills are required. The ability to sit for extended durations is necessary.Knowledge of common office equipment, such as fax machines and photocopiers is helpful.

Most of all, collections is a production-oriented career, so the ability to stay focused and ontask is essential to a collector's long-term success.

Bilingual individuals, especially those that can speak Spanish, are in demand in thecollections industry.

Previous work experience that is helpful to finding a job in debt collections are any type ofsales experience. Call center experience is a good background. Sales and call centerexperience, for example telemarketing, is good. Customer service experience is good,customer service in a call center is even better. Accounts payable or receivable experience

and accounting experience is great background to get started in career debt collections.Consumer debt collections will often have no background requirements, and will provide alltraining necessary to perform the job. Because of this, consumer debt collection remains the

best opportunity with little or no previous work experience

Skip Tracing Tools and Techniques Skip tracing is a key element of debt collections and most debt collectors will participate inthis activity in their daily operations. Skip tracing is the practice of locating individuals. This

practice takes place in the collection industry when the contact information on an account isno longer valid.

Since without correct contact information the account is not collectable, it is necessary to skiptrace, or locate the responsible party in order to initiate the collection process and resolve thedelinquency. Skip tracing is a skill that improves with practice.

Skip tracing uses the information provided with the application for credit. The informationused are the borrower's name, address, telephone number, place of employment, and anyreferences that were provided with the application for credit. With that information, it is

possible to search for new addresses, new telephone numbers, and new places ofemployment. Furthermore, the names, addresses, and telephone numbers of family members,friends, acquaintances, and possible neighbors, are also useful to verify the correct contactinformation of the responsible party. Inherent to achieving success with skip tracing is the



ability to make connections in existing data, most of which is publically available and free touse. The most commonly used tools for skip tracing are phone directories. It is also possibleto access reverse directory information via directory assistance. This is the practice ofobtaining a name and address associated with a telephone number. There is so muchinformation that is valuable when skip tracing. Marriage licenses, business licenses, permits,

certifications, property records, genealogy records, are just a few of the many availableresources one can use to track down a person who has skipped town, which is interestinglythe origin of the term used in collections today.

In the past, it was possible to contact one of the borrowers other creditors, in an effort toobtain correct contact information. Collectors would have a rolodex containing contacts atmany of the major creditors, usually other collectors in the industry, and sharing of contactinformation was an acceptable practice in debt collections

With the advent of the Internet, skip tracing is much easier than it used to be. There is a hugeamount of information available via online resources. Phone directories are now availableonline, and include the capability for reverse directory searches. Online resources includeskip tracing web sites, which provide links to public record databases that may have usefulinformation or other leads when attempting to locate an individual.

Many commercial skip tracing tools, such as Accurint, make use of the internet for access.Accurint is one of the premier commercial skip tracing tools for commercial use. WithAccurint, it is possible to search for historical and current data on individuals using anymanner of demographic information from addresses to social security numbers, depending onthe level of access. Accurint will also provide family member information.

With Accurint, it is possible to search by address, and obtain names and telephone numbersof the neighboring residences of that address, useful when attempting to verify correctinformation.

The major credit reporting bureaus also have online access for report ordering. Socialnetworking sites are also becoming a resource, providing another avenue of investigationwhen attempting to locate contact information for an individual. Due to the Internet, cost forskip tracing has lowered due to many state, county, and city government agencies providing

public access to information via the internet at no cost, whereas cost is involved to request ahard copy of the same information via mail.

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