All About/Debt Collection; Persuading People to Pay Their Bills During Hard Times

Debt collectors, the enforcers of the credit world, have long been plagued by a reputation as unscrupulous thugs who work in fly-by-night operations and delight in pouncing on people when times are tough. But the debt-collection industry says it has been misunderstood and unappreciated. Today's debt collector, industry executives assert, is a well-educated and courteous professional who is regulated by strict laws and uses the latest technology to perform a vital service in a creditdriven economy. To be sure, the business has undergone fundamental changes in the last two decades that have improved its reputation, regulators say. Nationwide companies with hundreds of closely supervised collectors and computerized operations have arisen from an industry once comprised exclusively of small firms serving businesses in their neighborhoods. The American Collectors Association, a 3,600-member trade group, has worked to pass laws regulating 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 more agreeable if collectors come calling.

These changes came just in time for agencies to benefit from the debt-clogged 1980's. The industry has expanded rapidly in recent years; collectors handled $66.5 billion in debts in 1990, up from $14.5 billion in 1980, the association said. But even Linda Russell, the association's president, acknowledges that no matter how much the 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't think 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, including hospitals and doctors' offices; retail businesses, including department stores and credit-card companies; 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, for it 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 have employed industrial psychologists to devise scripts. But in general, most agencies tell their collectors 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 by understanding 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., that employs 34 collectors. "If the consumer-debtor has the ability to pay, then almost everyone would say that he or she should pay," he said. "If he or she does not have the ability, but does have the willingness, we will 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, lie to them or call them at inappropriate times, like the middle of the night. Conversations and correspondence with debtors are confidential. And debtors can tell collectors to stop contacting them. Industry executives and regulators say the debt act has helped reduce the instances of some of the industry's more unsavory practices -- like threatening phone calls or harassment of debtors' employers or families. David Medine, an acting associate director at the F.T.C., said the agency does not keep track of how many complaints it receives. But he said there had been a "significant downward trend" 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 been uniform." Computer Helpers They Keep Records And Dial the Phone Twenty years ago, the office of a typical collection agency was awash in note cards recording each 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 for their addresses. These days, the offices of companies like Payco American seem like huge data processing centers. 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 monitor accounts at its more than 40 offices and to set work standards for its 2,500 employees. When the company receives a list of debtors, the computer automatically sends the accounts to collectors who specialize in areas like transportation, health care, student loans or credit cards. 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 a collector and the debtor's file appears on the collector's computer screen. The system frees collectors 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 bases with information gleaned from telephone directories, subscription houses and voter registration 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. The number of people owing money may increase -- drastically in some areas of the country; but at the same time, debtors' ability to make payments declines, forcing collectors to work much harder. So while collection agencies may not be suffering as much as other businesses in the current recession, most are not reaping any windfalls. The number of people paying off debts to agencies fell from 21 percent of listings in 1988 to 18.3 percent last year, the American Collectors 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 the agency, 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 the figures, which First Financial does not disclose separately. Mrs. Russell said small agencies were running into trouble because struggling businesses have withheld listings rather than pay collectors' fees. But she said in the long run, the small agencies 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 make the difference in whether they survive or not." Mrs. Russell -- who cheerfully acknowledges that she does not fit the stereotype of the debt collector 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 become collectors. "Contrary to popular image, it's a fun job, because you deal with people," she said. "And the real 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 hired debt collectors. But as health care costs have soared in recent years, more and more people are having trouble paying for medical care, forcing more billing departments to hire collection agencies. The health care market for debt collectors has grown so much in the last decade that many agencies 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 they were 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 health care system," Mr. Bohmann said. "They have to be better managers of their cash flow. They can't afford to make interest-free loans." George Arges, a senior policy analyst at the American Hospital Association, said many hospitals have become bogged down in compiling and mailing bills as they try to meet the specific 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 very time-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, I had no idea that it was going to provide me with a valuable skill one that would help me avoid losing thousands of dollars and also give me the chance to help others protect themselves against monetary losses. The industry Id fallen into was the rent to own business. As an account manager, I worked in the field to collect delinquent payments. Our customers were people who didnt have enough cash or credit to buy things like televisions, stereos, refrigerators, etc. As you might imagine, the majority of them were in a fairly 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 was sure to be fired. Fortunately for me, the president of the company took me under his wing to teach me the ropes. And I discovered that collecting money from people is really just a form of salesmanship. When you contact people about paying you money they owe, they are, understandably, going to be disagreeable. Their natural reaction will be to respond to your request for payment with anger, and you can end up in a nasty confrontation. Although its sometimes possible to argue a debtor into paying up, my mentor taught me that its much easier and more pleasant to use the art of persuasion. One technique he taught me was to start my conversation with the debtor by asking why he hadnt paid. And during the three years I worked for him, I never once had someone tell me he didnt pay because hes a no-good deadbeat. There was always a reason. Many had lost their jobs, had unexpected car repairs, or were fighting a debilitating illness that was draining all their financial resources. Others just didnt know how to handle their money responsibly, and kept blowing their paychecks on things they really couldnt afford. But it didnt matter what the reason was. Because I listened sympathetically, they felt that I understood their situation. And that made it possible for us to calmly 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 I discovered that the same techniques that Id perfected in the rent-to-own business worked with 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 thing about calling someone at work is that its hard for them to dodge the call without divulging to their co-workers or boss that theyre in debt and someone is trying to collect from them. Now, I should warn you that there are laws regarding whats legal and whats not legal when youre trying to collect money. If you violate those laws, you can end up being liable for significant civil damages. Im not a lawyer and am not dispensing legal advice here, but my understanding is that it is perfectly within your rights to call a debtor at work as long as you dont discuss their debt with anyone else there or dont 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 was no longer officially in the collection business, they were very helpful to me as a smallbusiness owner, as a landlord, and as someone who likes to help out friends and family members when they have a problem. (Ill never forget my moms smile as she thanked me for helping 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 like taking them to small claims court or hiring a lawyer but it is often not worth the expense and effort. However, if all it takes is a few calls or a letter, it can make sense for you to go after even relatively small debts. Here are the basic steps to collecting whats owed to you, whether its a business or a personal debt:

Determine when youll start to take action against the debtor.

You dont want to bring down the hammer on a friend who borrowed 20 bucks just because he hasnt paid you back within two weeks, or on a good customer just because hes a little late with a payment. As soon as you start going after your money, your relationship is going to turn into an adversarial one. So, chances are, youre going to lose that friend or customer. But at some point, even in cases like those, youre going to have to try to collect. The question is when? After 30 days? 60 days? 90 days? Every situation is different, so youll have 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 mail or on the phone. Say that youre just making hes aware that the debt hasnt been paid. This approach allows him to save face by claiming that he didnt know or forgot. And, in fact, a certain percentage of debtors will pay up as soon as they realize that you dont intend to let the debt just vanish.

If the gentle reminder doesnt work, the next step is to demand payment.

Youre no longer pretending that you think the debtor may just be confused. No need to be hostile, 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 dont have the money or those who just dont feel like paying.

If that doesnt work or if the debtor doesnt keep his promise to pay by a certain date you have to take an even stronger approach.

If he just doesnt feel like paying, you have no choice. Youre probably going to have to take legal action. But if hes simply overextended and doesnt have the money to pay all the bills he owes, you have to get yourself to the top of his list of priorities. How do you convince him to 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 isnt fun, but you can be assertive without being threatening, and civil without being ineffective. Its 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 a significant 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 allow you to collect what you're owed without going to court or getting into intense conflicts with your debtors.

The woman behind the women who convince 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 their muscle to threaten or intimidate defaulters into paying up. But Sonia Ferlauto, director of Accelerated Collection Services, looks more like the boss of a cosmetics 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 the Telstra Small Business Awards. Ms Ferlauto agreed that in a traditionally male-dominated profession, ACS's all-woman team was as much a surprise as it was a success. "Yes, it does challenge many people's perceptions," she said. "When I commenced business in 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 businesses hundreds of millions of dollars annually. In NSW more than $520 million was owed to public sector agencies for goods and services rendered to businesses. With consumer and corporate debt surpassing this figure many times over, it's no wonder debt collection is big business. "I didn't plan to be a debt collector," Ms Ferlauto said. "I came into the industry through a series of office management roles and became interested in debt recovery."

Communication skills topped the list of desirable qualities for the collection business. "You need to be a good listener and a great negotiator," Ms Ferlauto said. "You are dealing with so many 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. "If someone owes you money and they are not paying up, it's easy for you to get angry. But we don'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 excited when we contact them to say we have succeeded because, by the time it comes to us, the client 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" people were 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 a collector's repertoire is verbal communication. Negotiating payment arrangements on past due 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. Active listening skills are extremely important, as they will inform what assets are available to use for 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. A collector should have the ability to perceive unfavorable conditions and have the capacity to identify 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 to document accounts in a clear concise manner as well as understand written instruction or

comprehend correspondence in order to respond appropriately. Understanding information and written ideas and presenting written information and ideas is also a core skill for debt collectors. 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 functions of a debt collector is necessary. Time management also comes into play with scheduling and following up on payment arrangements. Time management is important to understanding the time sensitivity of account requirements that may be in effect. Furthermore, success in debt collections is dependent on the capability to adhere to work schedules. Typing, 10 key by touch, and data entry skills are useful. Experience with business applications 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 on task is essential to a collector's long-term success. Bilingual individuals, especially those that can speak Spanish, are in demand in the collections industry. Previous work experience that is helpful to finding a job in debt collections are any type of sales experience. Call center experience is a good background. Sales and call center experience, 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 all training 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 in this 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 is no longer valid. Since without correct contact information the account is not collectable, it is necessary to skip trace, or locate the responsible party in order to initiate the collection process and resolve the delinquency. Skip tracing is a skill that improves with practice. Skip tracing uses the information provided with the application for credit. The information used are the borrower's name, address, telephone number, place of employment, and any references 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 of employment. Furthermore, the names, addresses, and telephone numbers of family members, friends, acquaintances, and possible neighbors, are also useful to verify the correct contact information 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 to use. The most commonly used tools for skip tracing are phone directories. It is also possible to access reverse directory information via directory assistance. This is the practice of obtaining a name and address associated with a telephone number. There is so much information that is valuable when skip tracing. Marriage licenses, business licenses, permits, certifications, property records, genealogy records, are just a few of the many available resources one can use to track down a person who has skipped town, which is interestingly the 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 to obtain correct contact information. Collectors would have a rolodex containing contacts at many of the major creditors, usually other collectors in the industry, and sharing of contact information 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 huge amount of information available via online resources. Phone directories are now available online, and include the capability for reverse directory searches. Online resources include skip tracing web sites, which provide links to public record databases that may have useful information 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. With Accurint, it is possible to search for historical and current data on individuals using any manner of demographic information from addresses to social security numbers, depending on the level of access. Accurint will also provide family member information. With Accurint, it is possible to search by address, and obtain names and telephone numbers of the neighboring residences of that address, useful when attempting to verify correct information. The major credit reporting bureaus also have online access for report ordering. Social networking sites are also becoming a resource, providing another avenue of investigation when attempting to locate contact information for an individual. Due to the Internet, cost for skip 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 a hard copy of the same information via mail.