Business Law - Pinellas County, FL

Business Law - Pinellas County

Business Law

There is no question that the economy is showing signs of slowing. The Conference Board's Consumer Confidence Index reached an all-time high in January 2000 of144.7 (1985'100). But, August saw a pull back to 141.1. Consumer sentiment is an important economic indicator since consumer spending accounts for two-thirds of the nation's overall economic activity. Thus, the Consumer Confidence Index could be the precursor to a slowing economy.

In part because of the stock market's stellar performance, actual and perceived wealth is soaring. The feeling of wealth has caused many people to loosen their purse strings. We owe a lot, but we also have a lot of cash. The people with the debt are not necessarily those with the assets. The debt picture is pretty scary, say David A. Wyss, chief economist for Standard & Poor's/DRI.

How should your business react if -- or when -- the economy stumbles and your own delinquency rates rise? Rather than writing off the debt or beating your head against the proverbial wall, consider bringing in a third-party collector. Collectors specialize in collecting past due accounts owed to others. While collectors are traditionally referred to as collection agencies, the term now includes specialized law firms. With law firms being added to the picture, you now have a broader choice when selecting a third-party collector for your business.

Choosing a Law Firm or Agency.

Choosing a collector requires careful consideration. Some state law prohibits businesses from retaining collectors who have a history of violating the debt collection laws. Also consider that a law firm or agency will be directly contacting your customers. It will be leaving them, and the rest of your customer base, with an impression of your business, and that impression will be either good or bad depending on who handles the account and how it is done.

An intangible asset of a law firm is the unspoken influence that it carries. You and your business may feel more comfortable with a law firm contacting your customers and representing you. Also, a law firm may implicitly prompt a greater response from a debtor who may be unmoved by an agency. A debtor may have several agencies contacting him for payments but only one law firm. Remember that most law firms are in the business of suing people, a consideration that is not likely to be lost on the debtor when he is choosing whom to pay first.

When speaking to a collector, be sure to ask a lot of questions. Ask to see the letters that they mail out to debtors on your behalf. Ask about their Atalk off, their telephone demeanor and tone with the debtor. Ask questions about the collector's knowledge of your industry and how it will handle disputes related to the account.

Ask about the collector's training and certification. Agencies may have their collectors certified by American Collectors Association (AACA), a national affiliation of collectors. Law firms can employ state-certified paralegals or ACA-certified assistants. Some collectors have no certification at all.

It is also important that a collector thoroughly understands the laws governing their actions. The Federal Fair Debt Collection Practices Act (AFDCPA) is designed to protect individual consumers from undue harassment from collectors. In a draconian fashion, the FDCPA imposes both civil and criminal damages for violations.

Collectors must understand both the FDCPA and local debt collection laws that almost every state has enacted. So ask questions about in-house training and the qualifications of the trainer.

Next, investigate the logistics of working with the collector. Discuss how you can transfer information concerning your accounts to them. Large businesses typically handle the process electronically while smaller companies provide copies of billing statements, invoices and credit applications. And, ask how and when you will be paid after a debt is collected. Also consider that sometimes you will decide to cease collection on an account. Ask how you will be charged for the work already done on the account.

Your homework is not complete until you have investigated the collector's reputation. Obtain references, especially clients in similar industries. Also ask whether the collector complies with state licensing and/or bonding laws where the debtors reside.

For example, Arkansas requires that third party collectors be licensed and bonded in the state. Texas requires the posting of a bond.

Finally, check the collector for complaints filed against it with the state attorney general and the Federal Trade Commission which handles grievances for violations of the FDCPA. If the collector has several complaints on file, then look else where for your needed help.

How much will it cost?

Debt collection is usually done on a contingency fee basis. This means that a collector retains a portion of the money that is collected from the debtor. Contingency fees usually range from 30% to 50%, depending on the industry, account balances, frequency of and size of placements. Some collectors require an up-front fee but take a lower percentage of the amount recovered. The clear advantage of contingency fee billing is that you do not pay for uncollected accounts.

Additionally, cash flow is matched as the collector is paid when the debt is collected.

Quick Tips:

Make sure to follow up on overdue accounts immediately. Send reminders, but few tactics are more persuasive than a telephone call to the debtor.

If an account becomes past due, send out a series of past due letters. Set an absolute due date before the account is turned over to a collector such as 120 days past due. Do not extend this due date, but let the debtor know the consequences of failing to pay on time.

Use a credit application if you sell on account. The credit application should state that the customer will be responsible for the cost of collection if the account must be turned over to a collector. Also, require driver's license numbers and social security numbers. For business accounts, a personal guarantee is invaluable.

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