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Commercial collectors see rise in declining economy
By Stephanie Flemmons, Staff writer
While companies across the nation are searching for methods to stay afloat financially, employees from one industry claim their business is booming.
Executives from commercial debt collection companies based in Plano believe the recession has created business, but the approach to collect has changed.
Burt & Associates CEO Jerry Curtis said he doesn’t like the recession but the fact remains: it’s good for business.
Curtis said companies that he considers solid are experiencing more problems with their customers. It’s a domino effect.
Michael Haller, president of Haller, Harlan & Taylor, said the big companies that are never normally placed for collections are filing bankruptcy and receiving government bailout money, which forces collectors to get more creative.
“We are reprioritizing where the debt is in the debtor’s life, and how the creditor fits in the pecking order,” Haller said. “You do this by finding out the reason why you are not seeing payment on these receivables and a lot of the time they are not paying clients because they aren’t getting paid.”
Haller believes at this point it is crucial to figure out why these bills are not being paid and determining the debtor’s honest intentions. He said these days he is seeing more debtors becoming clients and clients becoming debtors.
“When you have this going on, which is not a normal conflict of interest, you have to be creative and determine how they honestly intend to pay, then we come up with a working resolution,” Haller said. “Sometimes it’s a payment plan, sometimes a settlement, sometimes working with them as they are restructuring their finances. We have many working relationships where the arrangement is to go get the money that’s owed to the debtor with an agreement that the monies recovered are applied to the original creditor’s debt.”
According to the latest numbers from the Commercial Collection Agency Association, a record $14.3 billion in business accounts nationwide were placed in collection in 2008, a 23.2 percent increase from $11.6 billion in 2007.
Haller said during these times people are looking at different angles to get their money collected instead of using the legal system.
“The legal system is bombarded,” Haller said. “It’s slow and a lengthy process. People are using third parties and thinking creatively.”
Haller, Harlan and Taylor vice president James Pratt said he too believes his company has seen a significant increase in business since the recession.
“Typically on average we see about $15 million to $20 million in bad debt,” Pratt said. “Now we are seeing close to $40 to $50 million.”
Pratt said HHT has witnessed a 50 percent increase in business, but is forced to find new approaches to settle up. He said it’s vital for companies to take action faster when their customers are delinquent on payments.
“It’s more of a diplomatic approach,” Pratt said. “We are going in to rehabilitate the customer, but not jeopardize the buy/sell relationship so our client can get the best of both worlds. They get money and cash flow in order, but also continue to do business in the future. It’s a fine line between being successful and not jeopardizing the future business with the client.”
Pratt said as soon as a company spots red flags, they should act more quickly than before the economic downturn.
“As soon as there are broken promises and busted payment plans they should act faster than before,” Pratt said. “You start hearing the old excuses n like ‘check’s in the mail,’ ‘I can’t pay you until I get paid’ n take action.”
Pratt said he has also seen his customers cutting down on manpower, laying more people off, which makes it more difficult for them to collect their own money.
“They have fewer bodies to touch the number of customers they have,” Pratt said. “If you had 10 people in your credit department and now you have four, you don’t have time to hold hands and kiss babies and figure out who’s going to pay and who’s not going to pay.”
Haller said another contributing factor for the increase on accounts placed for collection pertains to account receivable insurance companies tightening down who they will extend credit to.
“They are not sure who they can trust,” Haller said. “Before the AIG and the Enron scandals they were more trusting.”
While the nation is in the midst of a recession, Haller believes another contributing factor to the boom in collecting is a result of an excuse many fall back on.
“About 25 percent of the reason why we are seeing customers placed for collections is because they are using the fact the economy is not doing well as an excuse not to pay,” Haller said. “It almost replaces the old ‘check’s in the mail’ story. Now it’s ‘the economy is not doing good.’”
Haller said as the economic uncertainty continues, he believes some companies will not seek second parties to help collect.
“There are still people moving money in this economy and benefiting from the downfalls in a positive way,” Haller said. “Not all industries are messed up. If someone says I can’t pay you because of the economy, then seek a second agency placement so more opportunities can come in.”
Contact Stephanie Flemmons at sflemmons@acnpapers.com
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