|An inside look at debt collection by Jim Heath|
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I USE a debt-collection agency. But I don't use them for everything. The further you go in this matter of collecting debts, the more unemotional and selective you get. You pick your tactics. You pick your allies. You pick your time.
To help you get a handle on how debt-collectors work, here are some of the differences between debt-collectors and lawyers:
Debt collectors: Get paid when they collect money for you. And only if they collect.
Lawyers: Get paid as they go (and sometimes in advance). You pay them, no matter what the results.
Debt collectors: Will usually negotiate hard with the debtor to try to get a settlement before they start legal action.
Lawyers: Get stuck right into the legal process. Little negotiation, if any.
Debt collectors: Work fast.
Lawyers: May work fast, but for some reason rarely give that impression.
Debt collectors: Will knock on doors, phone at odd hours, and try anything legal to collect your money.
Lawyers: The only pressure they can use is to pursue the matter through the courts.
Debt collectors: Keep pushing their lawyer hard, if it comes to legal action.
Lawyers: May seem sluggish.
Debt collectors: Pay a lot of attention to whether it's possible to collect the debt. Will usually check to see if the debtor has assets.
Lawyers: May go ahead without worrying about such things. At best, will raise the point and leave it to you to decide.
Debt collectors: Can explain to you what's happening, in plain language.
Lawyers: Some will explain clearly. Others may not.
Debt collectors: If they need to use a lawyer, you have to pay for the lawyer, as well as pay a commission to the debt-collection agency.
Lawyers: Lawyers fees only.
Debt collectors: Can be extremely effective against 'professional debtors'
Lawyers: Usually no worry to 'professional debtors'
Debt collectors: Can find missing debtors.
Lawyers: Locating debtors isn't their business.
Debt collectors: Keenly interested in collecting debts, and in all aspects of it.
Lawyers: Rarely very interested.
All that might seem like a recommendation never to use a lawyer. That would be the wrong conclusion. There are times when you should go straight to a lawyer and let him do everything. And there are times when you should use neither a lawyer nor a debt collector. By the time you finish this book, all these choices should be fairly clear.
For now, let's take a closer look at how debt collectors work.
Point one: there are all sorts of debt collectors.
Some are large organisations that operate at a genteel level, sending out increasingly demanding letters, then starting legal proceedings at a certain pre-determined point. They don't get out into the field and bang on doors.
Some middle-sized debt collectors specialise in negotiation. They adjust their approach to the type of debtor. They do go out and see the debtor, but mainly with negotiation in mind. Maybe the debtor can pay so much a week? Or he could make an offer that might be OK? Anyway, what's the real reason this person hasn't paid? The debt collector wants information, he picks up vibes, he uses his common sense and experience to find some way to make progress. Only as a last resort does he use legal action -- and then only if he's sure there's really money at the end of it.
Finally, there may be debt collectors who simply want to shake up the debtor, frighten or embarrass him into paying. I honestly haven't met one like this. If a debt collector is harassing debtors, he shouldn't be. It's illegal and the debt collector will lose his licence if he's found out. Yet this is the image people often have of debt collectors -- thugs or demons, like some of the creatures on the cover of this book. There are newspaper stories about people being beaten with baseball bats because they didn't pay a debt. But if you look closely, they owed money to criminals. And criminals have their own ways to collect. Hardly ever by using licensed debt collectors.
Which kind of collection agency should you use?
If you run a big company, but most of your debtors are small, then a big debt-collection agency could be right. They're simply taking over the routine work of collecting lots of little ones. A few letters, maybe a phone call, then the threat of a summons -- to see if the debtor scares into paying. They probably have a cheap, assembly-line method of sending out summonses. (A lot of small debtors will pay on a summons.) What they do about the rest, depends on how much they know about the debtors. They might just write off any that don't pay on the summons.
Never use a collection agency that tries to scare people. Apart from anything else, it's not efficient. So many people will pay -- would like to pay -- if they could figure out a way to do it. Probably they didn't realise that they could work out a repayment scheme. Even humour can collect a lot of debts. You really don't want a grim agency, with no flexibility, communication skills, or diplomacy. So forget that one.
That leaves a middle-sized agency, with a lot of negotiating skill. This is a good answer if you keep getting debts of all sizes that are hard to collect. The agency will chase the small ones and the large ones, the easy ones and the hard ones. For them, it will all balance out. You'll get a flexible service, and a lot of good advice. These people are easy to talk to and really know the score. The best way to understand how they do things is to read some quotes from the head of one of these agencies (from a tape recording I made with his permission, over lunch one day):
"I tell our new people, you wear three hats. First, there's social welfare officer -- there's no point taking legal action with some of these people. They've got nothing. And it won't do our client any good. The second hat, the main one, is a negotiator. Sometimes our client has done a bung job, so let's settle this thing. The third hat is the hard-nose collection officer. We've got professional debtors out there. I know people around town who have furnished $400,000 houses, they've owned them, sold businesses and so on, drive around in a Mercedes, and they don't pay people. Whoever gives them credit, is a sucker. With these types, you've got to get down on their level and fight. You manoeuvre so they know they're up against a pretty heavy fighter. They think, I'd better pay this one. But all the other weaker ones, I won't."
"But our policy, if we can't get any part of the money in ten days, we look into them, eyeball their background a little bit, in order to summons them. If they've got a string of summonses against them, totalling ten, twenty, thirty, forty grand, and our debt is $500, we're a bit hesitant throwing our client in there, spending money, because they might waste it. The debtor is going down fast, so what's the point? We don't want to go for legal action because we know the ramifications.
"If it comes to a legal fight, we use a hands-on approach with our solicitor. First we get our own bloke out to serve the summons. We'll ring up the debtor and ask him: OK, you've got the summons. Are you going to negotiate? What's going on? If that's no good, we maybe get a default judgment and issue a warrant of execution against goods. But we still contact the debtor and get him involved. A lot of solicitors don't have a call-back system. They'll just wait three months, and if the sheriff hasn't contacted them, then they might do something about it.
"In debt collection, a lot of the time there's a defended action. We call for a summary judgment right away. Get affidavits from our client, get a court hearing date. Knock out the defence, because a lot of the time they don't turn up. And we get judgment, and go ahead with a warrant of execution. Alternatively, if they come up with a defence, our solicitor gives it to us, we read it, then we fax it to our client and discuss the matter. At that point if the client will give a little, we may pick up the phone and say, can we settle? What about giving a discount? And everybody pays their own costs.
"If the client says no, those bastards are so bloody wrong, we get the particulars of claim, all that's happened. It goes to our solicitor, who draws up an affidavit and it goes off to the defendant. And we say, there's our particulars of claim. If they aren't prepared to settle then, we list it for trial.
"Finally the trial gets close. Our solicitor might get an offer. He'll fax it through to us. Court hearing is Friday. He's prepared to offer such and such. Will your client accept? We talk to the client. If so, boom. Done. As long as we have the cheque tomorrow. We cancel the court hearing. We've done that many times.
"We keep pushing. When the sheriff serves the warrant of execution, he gives them another five days. What often happens is he comes back and gets a big sob story. 'Give us another couple of weeks', they say. Debtors have been able to delay the sheriff for a month or two by promising payment. We'll ring the sheriff and ask if he's got it yet. Two weeks later, have you got it? Give him another week. How's it going? You get much success? He might say, look there are goods here worth about $300 and the lady said she was going down to get a loan, and I was going to give them a bit of time. Other times, he'll say, yes, I've got the goods -- or I've got the cheque. They've paid.*
* [ For balance, I should tell you that a sheriff who read this said he "didn't listen to debt collectors, only to their lawyers." I found many other examples of this kind... Lawyers and court officials who weren't sure how debt collectors work. Sheriffs who complained about the ignorance of some lawyers. Lawyers who moaned about how long it takes the sheriff to act. Debt collectors who lashed out at lawyers... No serious contradictions, but enough conflicts of viewpoint to add a colourful human slant on the world of debt collection. ]
"A lawyer wouldn't do that. (Some would, to a point.) We follow it up. Because we aren't getting paid until the debt's collected. And that's the key difference. We're eager to go after the debtor, because we want a result. Because we want to get a commission. Because we want to show our clients we do a good job. We want them to give us more debts to collect.
"What you need with a solicitor, is someone to crack the whip. Someone who knows what they're doing. In debt recovery, you might be up against a lawyer who's being slow -- we've had this -- because their client told them, I want to drag this one out. Lawyers are very reluctant to slam another lawyer straight into court for not responding. Because they're scared of the judge turning around and saying, haven't you given this guy enough time? Say you want to push for discovery. Your lawyer shakes in his boots. I've been told, 'No, no, I can't do that.' I have to push him.
"I settle a lot of accounts for our clients purely on economic grounds. One just the other day: I spoke to the guy, the client wanted three grand. There was a little bit of funny business going on. They wanted $3000 from this debtor -- the client told us the debt was $3000, but we'll credit them $500 because there was a bit of a dispute on the job. They acknowledged that this guy would have a bit of a claim. So we'll accept $2500. So I went to the debtor and he said, no way, mate. The shoddy job, they did this and this. I talked to him a bit, joked with him -- as I said, it depends how the debtor responds, what we do. He could see the funny side, and also the business side. He was a bit stubborn. So he said, I'll give you $1500 and that's it. I said, you've got to be joking, mate. They've already dropped $500.
"So I came back to the client and spoke to him. He said, no, no, no, I want the $2500, but look, if you really have to take $1500 I'll take it. But get more if you can. I went back to the debtor, and said, look the time you're going to take off work, any sort of legal action, there's no winners. The time and money you're going to spend on this, even though you think you're right is going to be horrific, you're going to employ a solicitor -- you won't get all your costs back, because the court doesn't work that way. You might get 50% of your costs back, awarded, if you win.
"So I said, meet him halfway. $2000. And he thought about it and said, look, yeah, I can't afford the time off work --self-employed business man. OK, I'll settle. The client was happy. All done."
And my conversations with debt collectors were so interesting, here are some quotes from another one:
"The lawyers are very highly paid people. To my knowledge, there aren't many who specialise in small debts. And as they get busy, they tend to gravitate to more lucrative work.
"Where litigation is used, you should research it pretty thoroughly before you start. Lawyers tend to look at themselves basically to do litigation. And negotiations by a lawyer are pretty expensive, because of the time. They consider they aren't serving their client properly unless they issue proceedings, because none of the costs are recoverable until they're on summons or whatever. So there's a problem about doing anything but minimum negotiation.
"It's the opposite for a debt collector. I know very few debt collectors who encourage litigation. The lawyers really aren't encouraging it -- it's just they can't really do anything else. Lawyers don't have people on the road, they can't knock on doors, they don't have those telephone skills and things. Their telephone skill is avoiding wasting time on the telephone. It's bringing the thing to a head, defining the issues, and settling them.
"If other lawyers are involved, you need a lawyer. If we get a matter defended, we don't try to argue with a lawyer. We brief our lawyer, who takes over. So perhaps where litigation is certain, you need a lawyer. Where another lawyer is involved on the other side, you need a lawyer.
"Where you don't need a lawyer is where you don't really know what you want. Where the debtor is missing, or it's not clear if he has the assets. Or whether there are important non-legal aspects to be considered, like negotiating with the guy. I'm not talking about reaching a settlement with him. For example, where the guy is worried about what's going to happen to him in procedural things. Where a lawyer might not want to talk to him. The lawyer might just say, if you don't pay, we'll serve.
"One of the biggest problems we have with our clients is when they start to realise it's their own fault they've got this problem. And they're desperate to find someone else to blame. You know, the debtor is the worst bloke in the world -- often he is. But frequently he never should have been given credit.
"Before you engage someone to give advice, you have to take a hard look at yourself. You have to be ready to write debts off if you can't collect them. If you get burned, be careful about criticising the people who advise you. Very often people fly into lawyers offices wanting to issue summonses. The lawyer might say, 'It's 50-50, it's your decision.' He really means that. You might lose. You are really asking for it if you don't listen to him."
Some of this sounds critical of lawyers. It isn't really -- any more than criticising Mercedes because they make high-quality, expensive cars. That's what they do. My aim is to describe things as they are, as I found them. Once you know how things work, how different worlds interact and what matters to different players, you can make effective decisions. And we are getting there.