Bad Business Debts Hit High - Nothing is Sure in Life Except Death, Taxes ... and Debt Collection

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One industry that is doing a booming business in the recession is commercial debt collection.

Jerry Curtis doesn't like the recession anymore than the rest of us, but the fact is it's good for business. He's the CEO of Burt & Associates, a commercial debt collection company based in Plano. When businesses owe each other money and have trouble collecting, they call Jerry and lately his phone has been ringing a lot.

"I've been through several economic downturns, but this is unbelievable. We're seeing companies that have never had trouble collecting money before coming to us asking for help," said Curtis. "It normally takes around 30 days for companies to pay their bills. These days the average seems to be 45 days. The fact is companies that owe money aren't getting paid by the companies that owe them. It's the worst cash crunch the collections industry has ever seen."

According to the latest numbers from the Commercial Collection Agency Association, a record $14.3 billion in business accounts nationwide were placed in collection in 2008, a 23.2 percent increase from $11.6 billion in 2007.

While the number of accounts and money owed continue to climb, it's getting harder for collections firms to get businesses to pay up. The bad economy and number of bankruptcies are to blame.

"Members are negotiating a greater number of payment plans for the liquidation of delinquent debt as business debtors are facing a cash flow crunch," CCAA Executive Director Emil Hartleb says.

Members expect more accounts and more difficultly making collections through the second quarter.

Asked what business owners can do to improve collections, Hartleb suggests::

  • Be prepared to negotiate longer payment plans with delinquent and slow-paying customers.
  • Keep payments on a weekly or bi-weekly basis so you are in more frequent contact with the delinquent customer and on top of the situation.
  • Get the payment plan in writing. Be sure that any agreement confirms the amount owed and that there are no offsets against the account to avoid any controversy should litigation become necessary.
  • If the customer defaults and won't take steps or cannot take steps to resume payments, don't delay review of the account for placement with a collection agency.

While Curtis says the credit crunch is partly responsible for a delay in payments, he attributes most of the payment delinquencies to the economy's slowdown, which is hurting companies.

"For the last two to three years, they've had a pretty good growth cycle, and they did not have to do much to get the money in."

Curtis adds that without credit lifelines, businesses are now the bankers. They have to have the cash flow underneath their fingertips to make payroll, continue operations and pay vendors; whereas, in the past, a line of credit could pay off of all debt until the company's receivables came in, Curtis says.

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