Debt collection might be one of the most maligned professions in the country, but it’s one that manages to keep thousands of small businesses afloat and pumps billions of dollars into the economy each year.
It’s easy to see why debt collectors get such a bad rap. Whether they are third-party guns for hire or distinguished attorneys, they call too often, embarrass people at work and employ aggressive tactics to extract money.
But that’s not the whole story, says Dave Cannella, president of Associated Collection Agencies of Colorado and Wyoming and owner of the Springs-based debt collection business, Credit Services Company.
“We are small business owners, for the most part,” he said. “We’re not about collecting money that isn’t owed, and we’re not about breaking the law to get the money our clients are owed.”
Like most debt collection agencies, Credit Services Company works on a contingency basis. Cannella gets a commission based on the debt collected for his clients. And his clients run the gamut — from other small businesses to government agencies to hospitals and doctors.
“In this economy, businesses need to get the money they’re owed,” he said. “But they have to be careful who they hire to go after those debts.”
Cannella admits there are a few bad apples in the debt collecting bunch, but says that’s true of any business. And unlike some businesses, there are many regulatory hoops to jump through.
In response to unethical debt collections, both federal and state governments have tightened regulations on debt collectors. Cannella says it’s important to check the company’s reputation before hiring.
“You want to make sure they’re members of the Better Business Bureau, that they have a solid reputation,” he said. “In a way, we’re representing the business, so you want to pick someone who’s going to do that well.”
The Association of Credit and Collection Professionals, the umbrella organization for the state chapters in Colorado and Wyoming, lists the things businesses should look for when choosing a debt collector. First, the association recommends choosing an agency that “has values and ethics that mirror your own.”
Make sure the company is willing to assist customers with finding a solution, not just collecting a debt. And also look for one that uses online technology, and one that has personal referrals.
“Talk with other business owners … to find an agency that others may have used and had good success with,” the association recommends. “Be sure the collection agency you seek hires educated staff members who subscribe to a company policy built on ethics and values.”
Cannella emphasizes that the debt collection industry isn’t heartless — nor are they allowed to threaten or lie to the people they’re trying to get money from.
“We do everything we can to work with people,” he said. “But people have to work with us. It does no good to ignore the debt collection agency. If you don’t owe the debt, if it’s been paid, let us know. We don’t expect it to be paid off immediately, although that’s nice. But we’re more than willing to set up a payment plan.”
And businesses that use debt collectors aren’t the bad guys either. More than half of bad debt comes from medical bills. Memorial Health System is no stranger to bad debt. It estimates that it annually has a total bad debt and charity care cost of $70 million.
When possible, the hospital first tries to work out a payment plan for patients. For instance, if they don’t qualify for public health insurance, or other Memorial programs — yet they don’t have insurance — the hospital offers a discount based on how quickly a patient pays. If nothing can be worked out, the hospital turns to third party collection agents to collect money from patients. It uses two local agencies, including Cannella’s.
Memorial has concrete steps in the process: patients rare given a brochure and a payment card. Then five to 10 days after discharge, the patient receives an account statement. About a month later, they get a statement after insurance pays. Three months later, the accounts are sent to the extended business office. About 150 days later, accounts under $5,000 are automatically sent to a collection agency. Accounts over $5,000 are reviewed to see if they can be paid through a federal programs.
Once an account is sent to a collection agency, the agencies are responsible — for everything including judgments and property liens. And that’s where an attorney gets involved.
Some businesses forego the agency route, and hire an attorney. Kenneth Davidson, a local attorney whose entire practice is built on debt collection, says his services are sort of a one-stop shop.
“If you hire an agency, they might have to hire outside counsel if the business wants to sue to collect a debt,” he said. “If you hire an attorney, that’s taken care of — all the filings and appearing in court.”
Davidson says a small percentage of debt collection is taken to court, where garnishments and liens are put in place. He gets paid through a contingency program, a percentage of the recovered debt. But, he said, that isn’t the only advantage.
“Because attorneys already have a strong code of ethics, that’s something else to consider,” he said. “We don’t really need to regulations — because they are mostly things we can’t do anyway. We can’t lie and we can’t threaten. We wouldn’t even if we could.”
Good practices involve educating the entire office; everyone who works with consumers, he said. It’s important for employees to know they can’t get angry, threaten legal action if there is no intent to pursue legal action nor can they discuss the debt with other people.
“We can’t call people’s relatives and let them know they owe a debt,” he said. “That’s unethical, and it’s something we don’t do.”
Davidson has been in the business for 35 years, and says he’s seen more and more regulations as time passes. However, he hasn’t necessarily seen more business.
“You would think I would,” he said. “But we really haven’t. I think more businesses are just deciding not to pursue debt collections, because they assume people can’t pay.”
Cannella said he has more businesses calling — but fewer debts settled during the current economic downturn.
“But with people out of work, they might not have the ability to pay,” he said. “If they can’t pay off the debt, we don’t get a percentage of it. So, we work with the consumer to see what we can do, given their current situation.”
Debt collectors agree: don’t waste valuable business time trying to track down recalcitrant consumers. It makes more sense to turn the collection over to an agency. Don’t assume people can’t pay any part of the money that businesses are owed.
“That’s not a smart business decision,” Davidson said.