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Business Banking - Are the Charges Free?
Once a business understands the aging
of Accounts Receivable and Accounts Payable, it is easier to understand
other aspects of collection.
The basic message here is simple. The longer an account goes unpaid, the
more difficult it becomes to collect. However, there are two different types
of accounts that historically take longer to collect. Accounts that are owed
by the state or federal government usually take 60-90 days to pay. Medical
accounts will vary depending on the type of insurance the patient has. You may
want to wait or call to check the status of the account before deciding on
further activity. It is important to note that unless it is a worker's
compensation claim, most all other insurance companies have an agreement
between the client and the insurance company, NOT the patient and the doctor.
Client/patients should be making payment arrangements on their medical/dental
accounts whether insurance pays or not.
That being said, the biggest problem with any business and their collection
department is that in many small businesses, there is no collection
department. They are relying on the accounts receivable clerk to also act as
the collector and s/he is already busy getting invoices out and keeping up
with customer payments. There has never been a set procedure
regarding credit policy. Many businesses "shoot from the hip"
and just hope people pay them on time.
Local collection/credit bureaus usually offer free services to help
businesses establish reasonable credit policy. It should be a free service.
They will, of course, expect that you will use their resources when the time
arises. Another issue is that businesses don't understand their state's Check
Law. So, they may not be following proper procedure for accepting checks. Your
local County Attorneys office should be able to give you a training session or
at least proper information.
No account, with the exception of the government or certain medical claims
should be hanging around uncollected for more than 90 days. By 120 days very
serious measures should have been taken. After the original billing goes out,
a notice should be sent once the due date has past. Notices should be sent out
at 30/60/90 days. During this time, phone calls should be attempted to reach
the party. If no arrangements are made and there has been no response, then
there are a few options to take:
- Send out a Pre-collect notice with options
- Turn it over to a collection agency
- Take it to court yourself
Pre-collect notice:
Pre-collect is an interesting concept. For a very small fee per account a
collection agency will send a notice to the "debtor" (if they don't
pay, they cease being called "client") basically saying, "Hey,
we're monitoring this account, make arrangements to pay or we'll take the
account over." The client has the chance to pay the business directly or
if they don't, then they've made that choice. You can add options to call and
make special arrangements or to seek out credit counseling to help pay the
bill. But, if they don't respond at this point, don't waste your time.
Collection Agencies:
There is a place for collection agencies. You do not have time to mess with an
account that isn't paying. As we said before, take action no later than 120
days out.
Generally, a collection agency does nothing but collect past due accounts
for businesses. They are considered by law third party collectors. This means
they must follow state and federal laws in the collection of a debt. One of
the laws they must follow is the Fair
Debt Collection Practices Act or FDCPA. When you are attempting to collect
your own accounts, but have yet to turn them over, you are considered a first
party collector. Depending on your state, you may have certain laws to follow.
If you or the collection agency break the law in the collection of a debt, the
debtor may sue. Make sure you understand the laws of your state when you begin
to collect your accounts. Your attorney should be able to research this for
you.
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