How can I collect my bad debts?

I received this email from a reader who is into distributorship. This reader wrote: “ Mr. Limtingco, I am into trading and distribution, I have been reading your weekly column and I am happy that you are giving so much practical tips and solutions pertaining credit and collection problems. Now, I would like to know, how can I collect my bad debts?”

Well, almost all bad accounts or delinquencies in receivables are caused by negligence- either, negligence of commission or omission. Many rank and file personnel such as credit investigators and collection assistants in whatever industry are inadequately trained, or could be underexposed or inexperienced in handling and meeting the challenges of credit and collection or delinquency problems.

Furthermore, I have observed that it is a common practice in the Philippines that there are so many uncollected bad accounts that are hopelessly being pursued for collection by the creditors/sellers themselves in their mistaken perception that they can still be collected. Worse, the reason they don’t want to escalate the collection effort is they want to save in paying commission fees to collection agencies or attorney’s fees. My advise, don’t practice “false economy” in the collection of your delinquent or bad accounts receivable. Endorse them immediately to a reputable, reliable, no-nonsense credit & collection company. CIBI Information for instance, is one of the few companies in the country today that has both the expertise and technology to pursue a no-nonsense collection of bad accounts.

Some companies are even putting the burden to their sales people (to the point of sacrificing future sales) in the collection of their delinquent accounts. Personally, I believe that they are better, more effective in pursuing current outstanding than chasing unproductively for payments from delinquent customers. Leave the bad debt collection to experts and/or third parties and this will give you more effective cost benefits in such endeavors in the long run.

If you intend to collect bad debts using a third party, there is not much difference in using an Attorney or a collection agency. One must understand that the success of these accounts collected are almost the same. Both are using their own “unique style” in collecting bad debts. What I can tell you is whether it is a collection agency or a law firm doing collection services, ask them for “90-120 day prescription period”. Meaning, if they will not be able to collect within the prescribed period, you are free to pull the account and passes it on to the next agency or law firm. This is now the current trend in third party collection endorsements.

Lastly, it might interest you to know, that there are some para-legal tasks that can be done to reinforce or fortify your collection efforts:

1. Attorney-in-fact services;

2. Proper cost, effective-efficient documentation of sales, credit transactions;

3. Proper, timely notarization and registration of registrable documents;

4. Special service of summons, subpoena, warrants of arrest and the like;

5. Implementation, supervision of sheriffs in enforcing writs of attachment, execution, replevin, ejectment, repossession and the like.

For more credit & collection (C&C) questions, comments and rejoinders you want to share, you can reach me at 0917-7220521 or at [email protected]