Why Do I Have Slow-pay Accounts?
The short answer is, because you’re in business. Any company can expect somewhere between five and ten percent of their accounts to be slow paying. This holds true even when we take a cross-section among various industries. To be sure some industries will fall on the lower end of the spectrum and some on the higher end, but the law of averages holds true. Are slow-pay accounts just slow paying, are they bad debt, or are they simply uncollectable. The answer to this question is more important than any other since making this determination early on will save both time and money.
Collecting your money is a race and there are four (4) primary lanes that slow-pay and bad debt accounts travel in. Although a Consumer may change lanes due to circumstances in their life, they rarely do so from the standpoint of a conscious decision. One exception would be a consumer with a long history of bad debt who decides to apply for a mortgage to buy their first home. As you’ll see below, this person may very well move from lane four to lane three, but will only be advised and only be incentivized to pay if the item is on their credit report and payment of the item will result in a better credit report. The majority of individuals will stay in their respective lanes with little change in behavior or attitude towards their delinquent accounts.
The first (1st) lane consists of slow-pay accounts. This lane includes those Consumers who have paid something and will continue to pay so long as you stay in communication with them. This means consistent communication via billing statements and customer service calls. Remember, the best predictor of future behavior is past behavior. So, regardless if they have promised to pay or not, if they haven’t actually made any payments by, say, day 30-45 they are more than likely bad debt and not slow-pay accounts. Queues that a consumer fits lane one tendencies include: A history of paying you slow; Consumers who bounce you checks; Or Consumers whose credit card payments have resulted in declined notices. Expect three or four of these out of one hundred accounts (3-4%). Be prepared to escalate the process to a collections’ letter series if payment and/or communication ceases and you determine they too are bad debt accounts.
The second (2nd) lane are also slow-pay accounts. Comprised mainly of those Consumers who will make promises to, but won’t pay unless they get a collection notice. If your ageing sheet reaches day 60 and there have been no tangible payments it’s time to seriously consider hiring a Collection Agency if you haven’t done so already. Queues that a consumer fits lane two tendencies include: A recent divorce; They have moved/changed addresses; They sold their home or you receive a mail return for any other reason (a ‘vacant’ notice from the USPS means they are only at the address seasonally). Expect two or three of these out of one hundred accounts (2-3%). Be prepared to elicit the assistance of a Collection agency with the ability to skip trace for new addresses and phone numbers.
Stay tuned for Part 2 coming very soon!