Receivable/Accounts - Information for Credit and Collection Issues

Thursday, April 17, 2014

Begging For Settlements


A few months back, one of our clients asked if we sent out batch settlement letters, and they were shocked to hear that we didn’t do that.  I tried to explain that sending out blind settlement offers was literally begging for payments, and totally undermined everything that gave us authority.  They eventually came around to our mindset, but we had to explain a number of things.


If Your Best Friend Jumped Off A Bridge ...

Larger agencies often send out batches of settlement letters, especially on outstanding accounts that have been reassigned to their second, third or even later collection vendor – they do this with the concept that if 1,000 letters are sent out and 10 accounts pay, it was a worthwhile exercise.  What they aren’t looking at, and certainly they don’t tell the creditor is that a human set of eyes won’t even look at the remaining 990 files, and only a token amount of money will be recovered.

Back in the ‘good old days’, a letter was twenty cents and a phone call was a dollar – now a letter is a dollar, and a phone call is virtually free.  The concept of ‘first letter, second letter, final demand, settlement letter, legal letter’ is outdated and no longer works, so batch lettering should be done sparingly, and be monitored to make sure the collection agency at least breaks even on the ever-growing postage cost.

Really, batch lettering settlement offers is the epitomy of laziness -- it's a poor subsitute for a managed portfolio where these collection accounts are assigned to a collection agent and worked personally.


Authority vs. Begging

The reason that consumers pay a collection agency is that they can present themselves as an authority figure.  A collection agency can affect someone’s credit rating, or even orchestrate a court action to secure a balance.  On an individual basis, collection agents can set themselves up as an authority figure by showing they know the consumer’s social insurance number, date of birth, credit history, and source of income.  With that authority, it’s possible to negotiate arrangements – the authority is the leverage that causes the payment to happen, rather than the consumer paying the creditor before the account comes to collection.

So why would you want to throw that authority away by sending out a letter indicating you’ll take anything less than the balance plus accrued interest?


The Right Way To Do Things

Certainly creditors want to give their collection agency leeway to settle accounts – often they will give ‘blanket settlement authority’ on their accounts, so they don’t need to be involved in individual accounts.  However, just because a client might give 80% settlement doesn’t mean they want the agency throwing settlements out willy-nilly and forfeiting 20% of their receivables.

Settlements should be, in my mind, entertained on an individual basis – they should give the collection agency and the collection agent the ability to be lenient when the situation warrants it.   The whole point of a settlement, after all, is a speedy and painless resolution for all parties to shake hands, exchange funds without getting into dispute, extensive negotiation, or payment schedules.  It can be used to show leniency when someone has to borrow funds to resolve their debt, or is simply not in a position to resolve their account in the short-term.

An agency has been entrusted with millions of dollars in receivables, and they should use discretion and judgment when arranging settlements.  Not just throwing letters to the wind, and hoping for a low-manpower-requirement return in exchange for wasting authority and diligence.  Just because an account might have aged doesn’t mean it can’t be resolved in full most of the time, with settlements being the exception to the rule.l

That’s my opinion, and I’m sure others in our industry have their own – feel free to post a comment or email me if you have an opinion, I’m always glad to hear from other credit and collection professionals.  I can be reached directly at 226-946-1730.

Thanks kindly,

Blair DeMarco-Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
226-946-1730