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Insights into the art of getting long-overdue accounts to pay up.
Joseph McCafferty, CFO Magazine
February 1, 2003
A few years ago, Joel Lewis, then a collection manager for a large utility, found a stunning receivable in a pile of overdue accounts he was in charge of collecting. The utility was owed $800 by a couple named Fido and Fifi de Dog.
While Lewis never settled the dubious account, he did hone his collection skills enough to leave the utility and, along with his partner, Warren Dedrick, start a business that specializes in purchasing and reeling in long-overdue bills. Unlike regular collection agencies, the company, Marlin Holdings, in Glens Falls, N.Y., doesn't work on contingency; instead, it purchases bad debt for pennies on the dollar. Currently the company holds about $5 billion in debt in the utility and medical sectors, but is looking to move into other industries.
Lewis's experience offers some good insights into the art of getting long-overdue accounts to pay up. For one, he says the idea that the customer can't or doesn't want to pay the bill is often a misconception. "Many times the delinquency results from a dispute or other issue someone has with the bill." For this reason, collection agencies may not always be the best place to turn. "They don't have any expertise in resolving the disputes," says Lewis. He adds that electronic billing systems will often miss these issues. "Just sending out a bill over and over again is never going to resolve the problem. It needs human interaction," he cautions.
How much companies can get for their bad debt depends on how old it is: Marlin may pay 4 or 5 percent for accounts that are six months old, but only 25 basis points for debt that is up to five years old. Other factors considered in the price are the number of past collection efforts and the geographic location of the accounts.
And what about the de Dogs? It's the first lesson in getting payment, says Lewis. "You have to know who your customers are."