The first thing is to realize that A/R balances over 60 days old do not pay voluntarily. Something has to happen on your part. Unfortunately, accounts receivable is not like fine wines or cheeses – they don’t get better with age. So you’re going to need systematic follow-up using solid and proven letters and call tactics. Studies show accounts payable departments pay in priority fashion. What this means is that your collection process (invoice, follow-up fax, calls, etc.) must compete with your customer’s other vendors for the next available A/P dollar.

Don’t Be a Bank to your Customer - You’re a BUSINESS, Not a Bank

If you’re a vendor-lender, I’m going to show you how to work your receivables, manage your cash flow, and cut you’re A/R department costs. Your customer calls this Trade Creditor Financing, but to you it’s called excess invoice float. And it’s costing you money. You’re a vendor lender carrying past-due invoices interest free.

Unfortunately, this is what trade credit has evolved into. I’m going to show you how to control it, manage it, AND THEN actually profit from it.

Visit the Stevens & Ricci Resource Center for access to pre-packaged collection systems & strategies, including the renowned IRS Collection System©. If you have questions or comments, Ben can be reached by email at bricci@stevensricci.com or by phone at 888-722-1611.

At some point every business will encounter this problem: the customer who refuses to pay. You’ve tried every tactic at your disposal, but to no avail. The account is still outstanding and the customer isn’t paying anytime soon.

What else can you do prior to placing the account with a collection agency? You can have the IRS help you—in a round about way—to get your customers to pay.

But don’t go calling the IRS just yet. However, it is possible to have them help you. And you can thank a very innovative debt collection company—Stevens & Ricci, Inc.—for making the strategy called the “IRS Advantage” available to everyone.

“At one time I was a very frustrated credit manager,” says Ben Ricci, founder of Stevens & Ricci, Inc. “I was working for a large industrial lighting company that had a hefty amount of overdue A/R. I wanted a way to clear up the A/R fast, so I developed a collection strategy that would (in a sense) have the IRS help me make the collections…..and it worked, better than anybody could have imagined.”

The collection strategy works on the premise of reporting the debt as a loss. The IRS will view this as income to the debtor. It’s a well-known fact that the IRS routinely runs computer matches of 1099s against your customer’s tax filing.

But the key to the whole strategy is this: a pre-formatted IRS collection letter. Created by Mr. Ricci, the letter uses a powerful combination of accounting principles and debtor psychology. Once your debtor realizes that the IRS could be examining their tax statement a little more closely, you will be surprised how quickly a check will arrive in the mail.

Angela Tomassetti, a Controller at A.R. Fuels, Inc. has used the strategy with great success. “I Mailed 25 IRS collection letters based on this program—15 paid right away without even a follow-up call. These were our most stubborn accounts given one last chance to pay.”

The strategy is powerful, and Mr. Ricci has made it available to everyone. The IRS Advantage comes with the collection letter, step-by-step instructions, pre-formatted MS Word® files, a program example, IRS Form W-9, and a guarantee that this strategy can be used successfully by your business.

This changes the rules of the game. It could be the single most powerful collection tool ever created for stubborn customers who won’t pay.

You can’t beat having the IRS on your side in a collection matter.

About the author:

Ben Ricci develops and offers innovative strategies for businesses to improve working capital and operating cash flow. Discover new ways to speed collections, slash bad debt and lower overall credit costs by up to 60% at the Stevens & Ricci Resource Center or call 888-722-1611.

The key to this technique’s effectiveness is that after you read off then fax to your debtor all of the asset documentation they are going to have to bring into court under oath, they are more than likely going to pay you off instead. Further, you should mention if they don’t show up for the Exam, a warrant will be issued for their arrest similar to an outstanding traffic violation. This can cause them to be taken off to jail the next time they’re pulled over for a traffic violation.

Methods of Use

This technique can be done either verbally or using the letter and attached list of required items – or both. There is a separate collection letter and attached list of assets for corporate and individual debtors. Make sure to use the appropriate set. You will find the most impact is achieved when you speak to the debtor over the phone first then follow-up with a fax. You’ll be surprised how many Judgment Debtors will decide to settle up.

NOTE: If you don’t plan on actually following through with the Debtor’s Exam Order in the event the debtor doesn’t respond to this technique, do not fax or mail the letter and attachment following your collection call.

Using Your County Sheriff to Encourage Payment from your Judgment Debtor

Most judgments go uncollected after being awarded by the court. You’ve tried garnishing banks, assets and wages to no avail. What else can you do?

THE DEBTOR’S EXAM ORDER

Is there a business or individual that embraces the idea of appearing in court to reveal their company or personal assets in the greatest detail? Probably not, and your debtor won’t either. But what’s really amazing, is that getting your county sheriff to help you recover the debt is as easy as follows:

1. Inform your judgment debtor that if they don’t pay, you will have them served with a Debtor’s Exam Order to appear in court to show copies and statements of all property, stocks, bonds, notes, bank accounts, real estate, IRAs, pensions, financial statements, tax returns, insurance policies, and vehicle titles.

2. Mail or fax either the corporate or individual collection letter along with the asset detail list.

3. Follow-up with a phone call.

SEND ‘EM TO JAIL

Don’t forget to mention if they fail to appear for the Exam Order, there will be a warrant issued for their arrest. After the warrant is issued, should they be pulled over for a routine traffic violation, they will not pass go, not collect $200, and go straight to jail.

Once your debtor realizes that the courts will be examining their most confidential business or personal assets, you will be surprised how quickly a check can arrive in the mail.

It is important to remember that this is an aggressive approach to collections and should be reserved for only the most stubborn refusals to pay – an effective collection tool to be utilized with discretion and care.

Avoidance

Nearly 90% of bad checks are drawn on accounts less than one year old. Be suspicious of checks that have a number less than 125 or no number printed on it at all. Check the date and don’t deposit a check that is postdated — it may be defensible under Bad Check Statutes. Also, don’t ask for a post-dated check in response to a customer who “won’t have the check for two weeks.” In many states the criminal provisions regarding bad checks do not apply to post-dated checks. The reason is post-dated checks are a promise to pay in the future, they are not technically viewed as checks within the scope of most states’ bad check laws.

When You Receive a Bad Check

The first thing, of course, is to call the customer and let him know his check bounced and ask him if you should ask your bank to re-deposit the check. If you can’t reach the customer or if the check bounces again, your choices are to try collecting the monies yourself, asking your collection agency to help, or turning it over to your city or county’s bad check program for prosecution.

Keep the following in mind if you decide to collect the money yourself prior to calling in your outside collector or submitting to your city or county for prosecution:

• When mailing a bad check collection letter, make sure to put “Address Service Requested” underneath your return address. This is a valuable skip-tracing tool.

• If the customer offers to make good, accept only cash, money orders or cashier’s checks.

• Do not return the bad check to the check writer until you have received payment in full.

Summary of State Bad Check Laws

There are several variables, which differ by state, and you will need the particulars for your state in order to complete the sample bad check letter that follows. Contact Stevens & Ricci for a supplement to this CMS Series for your state. We’ll e-mail, fax, or mail the following for your state:

• Service fees allowed by statute

• Number of days you must wait after giving written notice to proceed as per statute

• Civil penalties provided by statute

• Amount of bad check that constitutes a felony

• Amount of bad check that constitutes a misdemeanor

Download the full tutorial at the Stevens & Ricci Resource Center. This will include a sample template letter in MS Word along with a summary of each state’s bad check laws.

The first thing you should do depends on how you heard about it. If the bankruptcy is unconfirmed (ie: your customer tells the collector they have filed for bankruptcy or the sales rep hears from their contact they have filed), you should go to the PACER website to verify the filing. Refer to the Product Review for PACER (in this email or at the Resource Center).

If you received a Notice of Commencement from the debtors’ attorney, you may want to contact that attorneys office for more information.

Once a bankruptcy is confirmed, the PACER site can provide you with the following:

- Complete contact information for debtors’ attorney.

- Case summary including date filed, nature of debt, trustee information, and status

- List of other creditors

- A copy of the formal notice

- Schedule or docket for a list of hearings and dates of all steps in the process

The majority of business bankruptcies are Chapter 11. If you are owed a substantial amount of money, the following guidelines will help you to optimize your recovery.

1. Do I continue selling to this customer? Some creditors automatically refuse to sell to a customer in Chapter 11. This can be a great opportunity to make back some of your losses. Find out if there’s debtor-in-possession (DIP) financing available. Base your credit decision on those numbers and if you decide to sell, set up a new account for the DIP entity and make the terms Net 15.

2. Consider your volume and margins. Whether you sell post-petition or not depends on each of these six factors including your appreciation for risk with the particular customer and what your margins are with them. Have you made enough money historically so that the current bad debt associated with the pre-petition is minimal?

3. Call the customer. It’s always a good idea to confront the customer directly and immediately, especially if it’s a major account and there’s some relationship with the decision makers. Ask them what’s going on and what their intentions are. Try to get a reading on whether they’re trying to come up with a reorganization plan or if this is just a holding pattern until they figure out how to liquidate. The biggest risk is always that they convert to Chapter 7 and liquidate. The best information comes from direct conversations with the customer and prior knowledge you have about the company.

4. Why did they file? Perhaps there were specific issues that caused the filing not related to operations. Let’s say for example a company is viable and making money, but they had some leases or specific debt issues they used bankruptcy to resolve.

5. Find out who the major creditors are. Ask the debtor directly for a list of their top 20 creditors. If not, you can obtain them from PACER once the schedule is filed. Then contact a few creditors to determine their strategy. See if there’s any interest in getting involved in a creditors’ committee.

6. Determine a strategy. The biggest question is whether you think the customer is going to liquidate the business.

The last thing you want is to have to explain to top management why the company lost money selling to a Chapter 11 account. If you’re going to sell to them on terms, make sure it’s well thought out as per above. Otherwise, it’s cash in advance or no sale.

Not under federal law because creditors usually elect not to go through the expense of challenging it.

However, bankruptcy does not prevent the creditor from trying to get the State Attorney’s Office to threaten prosecution to force restitution on the NSF checks. If the prosecution is by a District Attorney, Attorney General, or any law enforcement authority of the State for a criminal action, then it will not stop prosecution for a bad check.

When your debtor files a bankruptcy case, there is a stay against any attempts to collect a debt from them. When a bankruptcy petition is filed, Bankruptcy Law imposes “the automatic stay” which is an injunction on all collection actions and which prohibit further collection efforts on debts that came about prior to the bankruptcy filing. This “automatic stay” is one of the primary reasons many people file for bankruptcy.

Although the “automatic stay” is a very powerful part of Federal Bankruptcy Law, the “automatic stay” does not extend to proceedings by the State or any Federal governmental agency pursuant to its police powers. More specifically, any criminal prosecutions which enforce criminal laws are not subject to the automatic stay of bankruptcy.

The Bankruptcy Court treats prosecutions of bad checks as criminal proceedings and not attempts to collect debt as long as the actual purpose of a bad check prosecution is to enforce criminal bad check laws. Since a bad check prosecution isn’t meant to pressure the debtor into paying a debt that could otherwise be discharged in a bankruptcy the automatic stay of bankruptcy will have no effect on bad check prosecutions which enforce criminal law.

You could pursue collection of the bad check through the DAs office directly or attorney general in the jurisdiction of the debtor.

For more on bad checks, including an excellent bad check letter and what to do if you receive a bad check, check the Stevens & Ricci Resource Center.

Keep in mind though that you don’t want to go to court, you want to collect the monies owed. The Final Demand Letter sells the need to pay while it fulfills legal requirements. A good letter results in payment in as many as one-third of all cases, probably because the written word is far more powerful than speech at this stage of the game.

Think about the times you found yourself embroiled in a heated collection situation. After exchanging angry words – maybe even a lawsuit threat – what happened? Chances are nothing. For whatever reason, you didn’t pursue the claim.

Things change when you write a demand letter. Lay out the reasons why the other party owes you money. State that, if you fail to get payment, you will go to small claims court or turn the account over to a collection agency. Now, instead of being “just another bill collector voice on the other side of the phone,” you and your claim take on a sobering realness.

The other party must now confront the fact that you won’t simply go away, but plan to have your day in court or unleash agency collectors. They will have to expend time, energy, and money. As long as your position has merit, the chances that the other party will pay all, or at least a portion of what you demand, just went way up.

When you write your Final Demand Letter, keep the following points in mind whether or not you actually intend to follow through with small claims court action. (Refer to the sample letter.)

• Firm Opening: Grab their attention and get right to the point.

• Heavy Language: Nothing sets a serious tone better than a reference to some fine print or legalese in your contract or work order, especially if signed by the customer.

• Payment Demand: Say exactly what you want. Ask for a specific amount of money to be paid by a set date, or for some other specific action to be performed.

• Consequence: Towards the end of the letter, state your intentions and give your customer a potential “out.” (i.e., pay now and preserve your credit rating.)

• Close: Be polite and professional, avoid personal attacks. You want the other person to make a business decision: What are my risks of losing? How much time and expense does a defense take? Usually, the other party will decide it makes more sense to compromise.

• Enclosure: Enclose a copy of your invoice and/ or work order. In an involved situation, review the history of the dispute. If you do end up in court, the judge or hearing officer who doesn’t know the facts of your situation will read the letter.

• Mail: Send the letter by certified mail. This assures your customer that you mean business and provides a record of receipt.

• Fax: Send the letter via “Receipt Recorded Fax”. After faxing, print a confirmation report from your fax machine and attach it to your copy for proof.

TECHNICAL TIP: If your debtor is a corporation, mail or fax the letter to the Statutory Agent (call Secretary of State’s office to obtain), copying the debtor. If not a corporation, mail or fax the letter to an owner or partner, not the manager or clerk. Pull your credit application if you have one on file to find the names of owners, partners, corporate officers, etc. You want MAXIMUM IMPACT, and WHO you send it to can be more important than WHAT you are sending.

Your Final Demand Letter should contain the following elements:

- Firm Opening

- Heavy Language

- Payment Demand

- Consequence

- Close

Obtain a complimentary sample in MS Word at our Resource Center.

Keep in mind though that you don’t want to go to court, you want to collect the monies owed. The Final Demand Letter sells the need to pay while it fulfills legal requirements. A good letter results in payment in as many as one-third of all cases, probably because the written word is far more powerful than speech at this stage of the game.

Think about the times you found yourself embroiled in a heated collection situation. After exchanging angry words – maybe even a lawsuit threat – what happened? Chances are nothing. For whatever reason, you didn’t pursue the claim.

Things change when you write a demand letter. Lay out the reasons why the other party owes you money. State that, if you fail to get payment, you will go to small claims court or turn the account over to a collection agency. Now, instead of being “just another bill collector voice on the other side of the phone,” you and your claim take on a sobering realness.

The other party must now confront the fact that you won’t simply go away, but plan to have your day in court or unleash agency collectors. They will have to expend time, energy, and money. As long as your position has merit, the chances that the other party will pay all, or at least a portion of what you demand, just went way up.

When you write your Final Demand Letter, keep the following points in mind whether or not you actually intend to follow through with small claims court action. (Refer to the sample collection letter.)

• Firm Opening: Grab their attention and get right to the point.

• Heavy Language: Nothing sets a serious tone better than a reference to some fine print or legalese in your contract or work order, especially if signed by the customer.

• Payment Demand: Say exactly what you want. Ask for a specific amount of money to be paid by a set date, or for some other specific action to be performed.

• Consequence: Towards the end of the letter, state your intentions and give your customer a potential “out.” (i.e., pay now and preserve your credit rating.)

• Close: Be polite and professional, avoid personal attacks. You want the other person to make a business decision: What are my risks of losing? How much time and expense does a defense take? Usually, the other party will decide it makes more sense to compromise.

• Enclosure: Enclose a copy of your invoice and/ or work order. In an involved situation, review the history of the dispute. If you do end up in court, the judge or hearing officer who doesn’t know the facts of your situation will read the letter.

• Mail: Send the letter by certified mail. This assures your customer that you mean business and provides a record of receipt.

• Fax: Send the letter via “Receipt Recorded Fax”. After faxing, print a confirmation report from your fax machine and attach it to your copy for proof.

TECHNICAL TIP: If your debtor is a corporation, mail or fax the letter to the Statutory Agent (call Secretary of State’s office to obtain), copying the debtor. If not a corporation, mail or fax the letter to an owner or partner, not the manager or clerk. Pull your credit application if you have one on file to find the names of owners, partners, corporate officers, etc. You want MAXIMUM IMPACT, and WHO you send it to can be more important than WHAT you are sending.

Your Final Demand Letter should contain the following elements:

Firm Opening

Heavy Language

Payment Demand

Consequence

Close

Download a copy of the sample template letter at the Stevens & Ricci Resource Center at http://www.stevensricci.com/tools_products.html

As a general rule in early collections, a phone call is ten times more effective than a written collection letter. This is mainly because at this stage a two-way dialogue is far more effective than a one-way communication.

But like many rules in collections, there are exceptions:

• You might need to send a first collection letter because you don’t have time to make all your calls that week.

• A letter will be less expensive than long distance calls to small balance out-of-town customers.

• If you do not have trained telephone collectors, it is better to use well-written letters and less telephone contact.

Your success rate using a letter with the format provided at the Stevens & Ricci Resource Center should increase drastically. The smaller the business you are sending it too, the more success you are likely to have. The larger the business, the less success you are likely to have.

What a First Letter Should Do

Your first letter should indirectly ask for payment by means of asking for the reason for non-payment. The sample format letter on the Stevens & Ricci Resource Center gives your customer the benefit of the doubt by asking for the reason for non-payment using check-box style common reasons at the bottom and making demand for a response to the inquiry.

Further, you are adding interest to the total, which gives you instant priority over most other creditors you are competing with for payment. On a judgmental basis, you can put “waived” instead of the interest amount for certain key customers, etc. letters for the most part are trashed and ignored.

The first letter should not directly ask for or demand payment. First, you are assuming that a payment is due. Many times, the customer has put the invoice on hold awaiting your call to discuss something they feel is wrong with your product, service, and/or delivery. In cases like this, most will not contact you –they’ll wait for you to contact them. Unless you know the situation, always give your customer the benefit of the doubt.

The important thing with a first contact letter is to not ask for payment, but to ask for the REASON FOR NON-PAYMENT.

Refer to the sample First Collection Letter. It identifies a problem, asks for a resolution or other information and provides a check-box style for replying.

This letter can be customized to fit the particulars of your business. You may want to add checkbox reasons for non-payment based on the more common excuses you receive in your business or industry. The sample letter can be downloaded onto your computer in MS Word at which point you can add your company’s logo and information.

It is generally assumed that a phone call is considered the best first contact when a customer becomes overdue. Unfortunately, phone contact carries with it a lot of time and effort. The seemingly endless calling, being left on hold, leaving messages, returning messages, etc. that is inherent in this method distracts from the core effort of running the business.

However, it is possible to use a collection letter as the first contact, and get results similar to phone contact, but without the cost and time involved with using the phone.

The letter just needs a few important components.

First, treat the first collection letter as a request to the customer to explain why the payment is late and make your request for payment a secondary concern.

This does two things:

(1) It gives the customer the benefit of the doubt and suggests your interest in the customer is more than the value of the invoice. It leads the customer to believe you hold a genuine interest in their financial health.

(2) Some customers may have been holding off on payment in order to discuss a dissatisfaction with the product, service, or delivery. In cases like this, the customer will not contact you and instead will wait until you contact them. Again, it gives the customer the benefit of the doubt and treats them with the courtesy to which they are entitled.

Secondly, the first collection letter should provide an easy way for the customer to answer your inquiry.

An effective way to do this is to place a checkbox at the bottom of the letter with a list of the most common reasons for late payments. The customer is invited to mark the appropriate box and then return that portion of the letter to you. The point is to invite the customer to act and open a dialogue with you about the account.

Note if your business has an interactive website where customers can pay their bill online, it is very easy to set up an electronic version of the checkbox that can instantly beam the customer’s response directly to you via email.

If that is the case, the bottom of the letter should include a simple URL (”web address”) that the customer can go to give the requested feedback. Preferably, the electronic checkbox should be accessible from within the customer’s already existing online account.

Finally, place the invoice information at the top of the letter in the subject field and leave it out of the body of the letter.

This reinforces that this letter is a courteous reminder of an amount owed rather than a “demand” for payment. Remember, at this stage of collections, your contact with the customer is focused on being cordial and helpful.

To get an idea of what your letter should look like, a sample first collection letter with all of these elements can be downloaded at the Stevens & Ricci Resource Center. Link >> http://www.stevensricci.com/tools_products.html

Conclusion

If you apply the elements described above to your first collection letter, you should see a dramatic increase in the effectiveness of your collection efforts, while saving time and money over traditional telephone contacts.