As the economy continues to sputter, it is more important than ever for flooring companies to utilize smart and effective techniques when granting credit and following up on past due receivables. For the average company a $1,000 uncollected invoice means an additional $5,000 to $10,000 in sales must be created to make up for this lost revenue.
Since every dollar counts, businesses often need the help of a collection agency to get their seriously past due customers to pay. Unfortunately, the odds are overwhelming you are unknowingly giving debtors a “get out of jail free card” when placing them for collections.
The Fair Debt Collection Practices Act allows the federal government to regulate consumer collection agencies. How- ever, it does not have provisions to regulate commercial collection agencies—those that collect from businesses. This is left up to each state, and while almost all have different laws, most dole out sanctions and/or possible civil litigation for lack of compliance.
For example, in North Carolina, Florida and Idaho it is a felony to operate without a license; in Illinois it’s a first-offense misdemeanor, second-offense felony, and in Washington money collected must be returned.
Collection agency licensing is critical for both the agency and its clients. The negative effects from an unlicensed agency on your company are numerous. The most obvious is a debtor using a lack of licensing to avoid paying. If your company received a call from an unlicensed collection agency, would you pay?
A simple licensing search on the state regulator website by your customers can render a collection agency useless. In addition, an unlicensed agency that steps out of line with a debtor is more likely to get the creditor enjoined in litigation. Here are some additional reasons to use a properly licensed and compliant agency:
- Unlicensed agencies often work accounts passively so they can fly under the radar. Licensed ones have no such fear and can be more thorough.
- Following state law is not optional and associating with an agency violating state laws shouldn’t be optional either. Don’t be fooled by claims an insurance policy or inclusion in a trade association is a substitute for licensing; if states demand a license, so should you.
- Don’t be easy prey for a debtor’s attorney. Documenting due diligence by verifying an agency’s licensing information gives you a powerful shield from being enjoined in a lawsuit.
- A licensed agency is up to date with all laws, regulations and licensing requirements, which often include bonds to protect the creditor.
- Unlicensed agencies are targets for negative media and creditors are often dragged into the unflattering news.
- Licensing is complicated and expensive and a licensed agency is most likely to be competent and financially sound. Having the agency collect your money is only half the battle; collecting your money from the agency is the other half, so don’t take the risk.
There are a few steps to take to ensure due diligence is proper:
- Know your state’s laws.
- Verify licensing laws where the agency is located and the state where your debtor is.
- Ask the agency to verify its licensing information in states where you conduct business.
There are a number of ways to determine licensing rules for each situation. The most direct is to call a regulator. You can also require copies of the licenses prior to engaging an agency.