One of the biggest challenges I have faced over the past 12-18 months is deciding when it's time to turn a customer over to a collection agency or attorney. Even more challenging is knowing which of the two choices will be most effective. As credit managers, we all want to take ownership of our accounts and have mixed feelings when handing off the baton. On one hand, I feel a sense of relief knowing that I have one less customer requiring ten phone calls per day to collect that monthly payment promise of $100 toward a $6000 debt. While on the other hand, I feel I have failed at my job and didn't get to experience the victory of receiving that final payoff.
This decision certainly has not become easier with added company budget cuts and pressures to reign in accounts receivable. Keeping a high maintenance account in house to collect is much cheaper from a cash outlay perspective, although it takes valuable time away from areas of focus that could be more useful to the company. Many of us fail to realize that we are really doing our company a disservice by not "letting go" soon enough. I have to remind myself of this quite often as these situations are becoming more and more prevalent.
The pressure to keep the budget under control by reducing legal fees also weighs heavily on my mind when making this difficult decision. However, I often overlook the fact that using an expensive attorney is not the only solution. Along with many of you, I tend to believe that an attorney will be the most effective avenue given they focus on first attaining a judgment followed by garnishments, promissory notes, and mountains of legal bills. This approach is necessary in some cases but not in a majority of the accounts I have sent down this road. We end up running out of options and sitting on a judgment on which we were unable to collect.
As a result of the above, I've turned my collection focus to the NACM Collection Department for a multitude of reasons, primarily cost. Collection agencies are paid on a contingency basis. If they collect they get paid a portion of that amount. In addition, the collection agency can choose to use one of their attorneys if they are unsuccessful within a certain timeframe. Even still, the account still remains on a contingency basis. How can you go wrong? If NACM works the account and isn't successful and decides an attorney should be involved, your company pays minimal upfront fees and you still are out only a portion of the balance if they collect. You can see why this is a win-win situation for the company working to keep costs down and collections up. By using NACM's Collection Department, you even get more bang for your buck as they are local and more familiar with the customer base, utilize information received from local credit reports and trade groups, and can even swing by a customer's place of business. They believe in the philosophy that you attract more flies with honey than vinegar and have proven very successful with that approach.
I encourage all of you to give NACM's Collection Department a try the next time you need help from a third party.