As the owner of a business, you may have considered hiring a debt collection agency after your in-house collection efforts failed to bear fruit. And after doing some research online about debt collection, you may have come across terminology that was a little confusing.
After offering debt collection services for over twenty-three years, at Summit A*R we realize that the industry has developed its own lingo. Not all the terms may make sense to the uninitiated, such as clients who are seeking debt collection services for the first time. Therefore, we felt it was prudent to compile a list of commonly used terms along with their meaning.
#1 Creditor and Debtor
A creditor is an entity or person that has extended credit to another entity. A debtor is the entity that owes them money. For example, your customer owes you money, then they’re your debtor.
#2 Delinquent Account
Any unpaid account past the due date is considered a delinquent account. A customer who hasn’t paid their debts past the due date is considered a delinquent customer. However, the term is typically used when the payment is significantly past the due date. Different professionals, businesses, and industries use the term in different ways.
#3 Accounts Payable (AP)
This is an entity’s current debts and obligations displayed as a liability on their balance sheet. A good AP department manages its payment cycles in a timely fashion.
#4 Accounts Receivable (AR)
This is the balance of payments owed to an entity. An AR department strives to maintain a good AR receivable turnover ratio by collecting its receivables as effectively as possible. You can use the Accounts Receivable Turnover Calculator on our website to check how quickly your invoices turn into actual money. The AR turnover is calculated by dividing your total credit sales by the average of your accounts receivable.
#5 Difficult Debt
Debt that’s hard to recover is called difficult debt. Usually, a campaign of official demand letters and phone calls from a reputable agency like Summit A*R is enough to recover most accounts. Sometimes, it requires skilled negotiation tactics. However, some debt can be particularly difficult to recover for a variety of reasons. At Summit A*R, we’re proud to say that we have recovered many such debts over the years thanks to our experience, professionals, and wealth of resources. One such resource is our skip tracing department, led by a licensed private investigator. This department can locate most debtors and their assets.
An effective way to convince a delinquent customer to pay their debts is through credit bureau reporting. Unlike a company’s in-house collection department, we can report delinquent customers to the major credit bureaus as no additional cost to you. Most debtors would rather pay their dues than have a blemish on their credit report.
#6 Bad Debt
While at Summit A*R we have recovered some particularly difficult debts over the years, some debt is unrecoverable. Perhaps the entity declared bankruptcy or started another identity. If you suspect that your customer won’t pay, then get in touch with us as soon as possible. Studies suggest that debt grows harder to recover with time, so it’s advisable to act as soon as possible. We have the resources to recover difficult debt. Don’t let it turn into bad debt.
#7 Debt Write-Off
When a creditor has exhausted all efforts to recover an account and is certain that it’s bad debt, then they may pause or end all recovery efforts. A debt write-off is when a company deducts a useless asset as a loss. They realize that chasing the debt is not worth their resources.
We work on a contingency basis with our clients for exactly this reason. We don’t demand payments upfront nor do we demand a certain number of accounts. We only get paid after we successfully recover your revenue. This way, you’re not throwing good money after bad debt.
When an entity is overwhelmed by their debts, they may file a legal proceeding called bankruptcy for protection. Their assets may be evaluated, sold, and used to pay some of their debts.
It’s always advisable to keep track of all your debtors. If a company has stopped placing orders, is laying off employees, losing stock value rapidly, and owes other businesses money, then they may be in financial trouble. Our corporate collection services can help you recover your revenue in this situation and improve your cash flow. It’s important to act fast, or your customer’s other creditors may beat you to the punch.
To recover particularly stubborn debts, we can take the account to our full-service litigation department. Here, a financial investigation is conducted. If the cost-benefit analysis suggests that legal action is feasible, then we approach our client for written consent and the upfront payment of legal costs. Then, the matter is pursued in the courts with the assistance of our affiliated attorney. If the outcome is favorable, the debtor can be held responsible for the legal fee and our client is reimbursed.
If our client doesn’t want to use the litigation program, then the account is returned to the collection queue for future efforts.
#9 Unethical Debt Collection
Unethical debt collection refers to shady or underhanded tactics used by a minority of debt collectors to recover a debt. These tactics can range from threats, harassment, misrepresentation, or robocalls. However, most of these strategies are considered ineffective and outdated.
#10 Ethical Debt Collection
At Summit A*R we follow our “P.H.D. Philosophy” (Preserve Human Dignity). This means that we treat customers with a stern but friendly and respectful attitude. We bring humanity back to debt collection by treating clients with compassion and dignity. Our ethical methodology is highly effective. Our recovery rate is twice the industry average and we have an A+ rating from the Better Business Bureau (BBB).
We’re also proud to be affiliated with some reputable organizations. Membership groups such as the ACA International and the International Association of Commercial Collectors (IAACC) promote positive values amongst its members and encourage ethics, professionalism leadership, integrity, respect, responsibility, and education in the debt collection industry.
We hope that some of these terms can help you understand the industry. If you need help collecting a debt, then give us a call to get started with the debt recovery process. We’re a highly experienced, professional, licensed, and ethical debt collection agency. Let us help put you back in the black.