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First-Party vs. Third-Party Accounts Receivable

30 Nov

You know that understanding the details of how your accounts receivable department works is vital to the long-term success of your business. Without diligent attention, it can become one of the biggest financial headaches within your company.

Accounts receivable can be handled in one of two ways: first-party and third-party management. This may seem self-explanatory; first-party means your company manages AR in-house, while third-party means you’ve outsourced to an outside company. This is true on the surface, but there is a secondary way to look at the issue. First-party accounts receivable management can also mean that a separate company handles your AR.

To understand how this is possible, it’s important to look at the process of collecting on outstanding accounts, and at which stage first- and third-party management are best utilized.

 

Identifying Which Collection Strategy Is Best For You

In the business world, it is inevitable that some of your customers will fail to settle their account in a timely manner. Some may need a gentle reminder or two, while others may need to implement a repayment plan to meet their obligation. Others will simply not pay at all. You know that the longer your company goes without recouping those funds, the harder it is for your cash flow to remain healthy.

If your company is looking for a streamlined approach to collecting on overdue accounts, you can enlist the help of an outside company to handle both first-party and third-party management.

 

Early Stages – First-Party Management

When the account is only slightly overdue, first-party management is recommended. This is when all communication with the customer appears to come directly from your company, even if a separate company is handling it. First-party management is about trying to cure an account or prevent a loss, so early intervention is crucial. The treatment of accounts worked first-party and in a pre-charge off situation, is often the same.

At TSI, our goal is to become an extension of your back-end operations, streamlining the first-party collection process for you. Your branding and communication guidelines are strictly followed. Reminder letters and calls are common during this stage. We strive to maintain a relationship with the customer and help everybody reach a workable solution.

 

Later Stages – Third-Party Management

The decision to move to third-party management is usually due to the failure of a customer to respond to earlier messages. People commonly refer to this stage as ‘being in collections;’ communications are now coming directly from a separate company. The third-party is still acting on behalf of your business. Post-charge off work would also fall under this stage.

With third-party management, other tactics can now be used to locate the customer and bring the account up-to-date, aiming to instill a sense of urgency in the debtor. Third-party management is often more regulated than first-party and is always covered under the FDCPA (Fair Debt Collection Practices Act).

Ultimately, third-party management is about liquidating the total balance written off, and TSI can help. Our diplomatic process is designed to maintain a positive relationship with the customer while encouraging them to settle their account quickly. We utilize our proprietary data analytics platform and collection tactics including skip tracing, credit bureau reporting, and bankruptcy monitoring to increase your liquidity rates and develop more accurate revenue forecasting.

But the real value of our operations is in our people. You can rely on our seasoned collection experts to work diligently on your behalf, backed by extensive training and support.

 

Reach Your Goals With A Trusted Partner

Working together with a partner from the early stages can benefit both you and your customers. It allows the partner to become familiar with an account in receivables right from the beginning, so they can better judge if and when to move an account from first-party to third-party status.

It also relieves the burden from your in-house staff of having to chase down overdue accounts. Your team can focus on other areas of the company to keep operations running smoothly, knowing that a trusted partner is acting on your behalf to bring your accounts receivables up to date.

Finally, you can develop a customized approach to give your customers an integrated experience, which could result in a higher percentage of accounts being settled during the early stages.

TSI is committed to providing personalized services to your customers, maintaining and enhancing relationships while helping you recoup lost revenue. Our integrated collections platform combines best-in-class technologies with data-driven workflows to facilitate effective and compliant operations for our clients. Contact me today to explore your options.

Source: TSI

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Cyber Security and Debt Collection

20 Nov

Did you know that employees account for 43 percent of data loss, whether intentional or accidental? The remaining data breaches occur because of criminal infiltration. Regardless of the threat, our research shows that data loss and security breaches cost companies an average of $4 million in 2016, during which more than four billion pieces of confidential data were exposed.

Unfortunately, failing to create an effective cyber security system for your data collection efforts could put your customers and your company at risk.

Risks Associated With Cyber Security and Debt Collection

Data is easier to steal than you think.

Debt collection records are particularly sensitive because they contain significant financial information. The sensitivity elevates if you’re in the healthcare industry because your data might include personal health information (PHI).

Since you must report data breaches, your company’s reputation can take a serious hit if your customers’ data becomes compromised. Additionally, you could face serious consequences with regard to your cash flow, accounts receivable management, and stakeholders.

A data breach involving debt collection records could result in a serious fine from a regulatory body. Back in 2012, for instance, an auto dealership and a debt collector had to reach a settlement with the Federal Trade Commission (FTC) over data breaches that took place because of peer-to-peer file sharing.

Unfortunately, data breaches are on the rise. Our research reveals that 2016 saw nearly 40 percent more data breaches than 2015, and 94 of those breaches exposed at least a million confidential records each. Consumers value their privacy. In 2016, more than 15 million American consumers suffered from some sort of identity theft.

Cyber Security Solutions for Debt Collection

Getting best-in-class security for your data can help prevent breaches and other cyber security issues.

Many businesses don’t have the infrastructure necessary to meet HIPAA, NIST, FISMA, and PCI-DSS guidelines. That’s why working with a well-equipped collection agency can become a major asset.

Established collection agencies that secure their data against breaches can help protect your company from lawsuits, fines, reputation hits, and other consequences of a data breach. When you’re looking for a collection agency to handle your accounts receivable, make sure the candidate you choose follows these guidelines:

  • Data protection for data while it’s at rest, in processing, and in transit
  • Secure data center with 100 percent uptime
  • Redundancies in place to preserve data
  • Employees who are experts in specific data security areas, such as HIPAA, depending on your industry

Furthermore, you want to work with a debt collection agency that views security as a priority. As hackers and other criminals find new ways to skim data from victims, debt collectors must keep up with those attempts and find new ways to prevent intrusion.

You also want to make sure that your data is physically safe. Data centers should be equipped to prevent physical intrusion, fire and flood damage, and other catastrophes.

At TSI, our service portfolio is compliant with NIST, FISMA, PCI-DSS, and HIPAA. We employ security specialists with years of experience and expertise in protecting data against loss and corruption. If you’re looking for a debt collection agency to not only promote healthy cash flow and collect outstanding payments but also to preserve your data, we’re here for you. Contact me now to start optimizing your revenue.

Source:TSI

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Statistics That Will Shake Up Your Accounts Receivable

31 Oct

If you sell products or services on credit, then chances are that the words “accounts receivable” are enough to give you a headache.

Nevertheless, successfully managing your collections department is critical to your growth as a business. Recent numbers suggest that uncollected receivables could cost your company into the hundreds of thousands of dollars. Plus, surveys show that most businesses aren’t that great at staying on top of them.

Let’s take a closer look at how much your collections are costing your business, and what you can do to fix it.

Numbers Don’t Lie

Figures from Inside Account Receivables Management clearly illustrate how receivables lose significant value over time. By the time they are 90 days overdue or more, they could be worth only 20% of their original value:

Not only is value lost on the money owed, but overburdened AR departments can cost your company in other ways. Increased workload, reduced productivity and resorting to bank debt to maintain cash flow are all symptoms of poor collections practices.

A payment practices study in 2016 proving that even though it’s costing them money, many American companies have room for improvement when managing their collections:

  • On average, companies write off 1.5% of their receivables as bad debt.
  • 93% of businesses experience late payments from customers.
  • 47% of credit sales are paid late.
  • Average payment terms are 27 days, but actual payment period averages 34 days.
  • Survey participants see maintaining cash flow levels as a key challenge that is critical to business profitability.

 

Clearly, your accounts receivables could be costing your business a sizeable sum. However, there are a few best practices that you can implement today that will help to tighten up your collections department and allow you to put money back into your business.

Do The Math

The first step is to calculate your average collection period. This will give you a clear idea of the number of days on average it takes for your business to see receivables turn into cash.

A very informative post on The Balance outlines exactly how to perform this calculation. It requires some basic financial information about your business:

Days in Period x Average Accounts Receivable / Net Credit Sales = Average Days to Collection

Let’s break that formula down to its basic elements:

Days in Period — This can vary; it could be 365 days or 90 days; whatever works best within your business. The key is that however long this period is, all other parts of the formula must span the same number of days.

Average Accounts Receivable — Using the period of time established above, total the accounts receivable both at the beginning and at the end of the period. Then divide it by 2.

Net Credit Sales — This is the total of your gross sales minus the total of all returns during the set period.

For example, Company XYZ sees that their outstanding account receivables sit at $30,000 at the beginning of the year. By the end of the same year, they have risen to $36,000. Net credit sales came to $100,000 by the end of the year.

Using this example, the formula looks like this:

365 x 33,000 / 100,000 = 120.45

According to the math, it takes an average of 120 days for Company XYZ to see their account receivables resolved and translated into all-important cash flow.

Next Steps

Now that you have an idea of how long it takes credit customers to pay you, you can implement strategies to improve. For instance:

  • Narrow your credit requirements to cut down on credit-consumers
  • Train staff to clearly illustrate credit payment policies
  • Be prepared to enforce your credit policies
  • Incentivize early payment
  • Consider enlisting outside help to manage accounts receivable

We are dedicated to helping companies collect their accounts receivable while maintaining customer service excellence. Our years of experience can help you streamline the process of debt collection, now and for the future, while optimizing cash flow and increasing productivity in all areas of your business. Contact me today to learn more.

Source: TSI

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Don’t Miss This Great Business Tax Credit

1 Feb

In 2104, Congress approved a tax credit for businesses as a part of the Affordable Care Act.  Don’t miss out on this tax credit that could save employers thousands, tens of thousands, and even hundreds of thousands each year.

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A Warning You Need to Read: Don’t Believe in Something For Nothing!

14 Jan

Many businesses have been told by their collection agency that they can provide free collections to them simply by adding the percentage fee onto the debtor’s balance as “the cost of collections”  In other words, promising prospective customers “something for nothing.”  With the high cost of collection agencies, this is a very tempting offer for a business who needs to collect their money and hesitates at paying an agency their typical 30-50% fee for collecting.

DON’T BELIEVE IT!!

First of all, the match doesn’t work anyway.  If the fee is 50% and the agency or the client adds the 50% back into the bill before it is collected, the client will only receive 50% of the new balance, which is not the full amount (only 75% of the original bill)

More importantly than that, the agency is tempting you to violate Federal Laws against usury.  The agency is setting themselves, AND POTENTIALLY YOU, up for a law suit and stiff fines and penalties.  Even if you put a statement to that effect into your financial policy, you may not charge these percentages to recoup your collection fees.

Please take a moment to read this article, copied from the ACA International (American Collector’s Association) website about a recent court case against such an unscrupulous agency.

Court Rules Against Collecting Percentage-Based Fees

Eleventh Circuit Court of Appeals ruled that charging consumers a percentage
of their account balance as a collection fee is a violation of the FDCPA unless
the consumer explicitly agreed to pay a percentage-based fee.

In a Jan. 2, 2014, ruling, the Eleventh Circuit Court of Appeals found that a collection
agency may not collect a fee based on a percentage of the account balance if the
original contract between the consumer and creditor did not specify the consumer
would be responsible for a percentage-based fee.

In the case, Bradley v. Franklin Collection Service Inc., the consumer plaintiff had
signed a patient agreement when receiving medical treatment that stated, “In the
event of nonpayment… I agree to pay all costs of collection, including a reasonable
attorney’s fee…” The creditor subsequently added a 33-1/3 percent fee (reflecting
the contractually agreed upon fee between the creditor and the collection agency)
before forwarding the account to the collection agency.

The court ruled that the plaintiff, “agreed to pay the actual costs of collection; his
contractual agreement with [creditor] did not require him to pay a collection agency’s
percentage-based fee where that fee did not correlate to the costs of collection.”
The court found that the percentage-based fee, assessed before the collection
agency’s attempt to collect, was not related to the agency’s actual cost of collection,
thus breaching the agreement between the consumer and the creditor. Therefore,
the court held that the collection agency violated the FDCPA by collecting the 33-1/3
percent fee when the consumer only agreed to pay the actual costs of collection.

© 2014 ACA International

In other cases, medical practices, along with the agency, were charged under racketeering laws for the very same offense.  The fines and penalties that they were required to pay were astronomical.

Please, let me show you a way to avoid the percentages charged by these collection agencies, without running afoul of the law, and while collecting more money than they do in the process.

Respond to me through the form below and I will rush you the information on how to avoid these kinds of unscrupulous methods and still collect more of your hard earned money.

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Tools To Help You Get Paid Faster

6 Sep

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Are you having a hard time finding the time to contact your customers or patients regarding payments?  Let Transworld Systems help you Accelerate your payments and improve your cash flow with Accelerator.

The below infographic illustrates the benefits of Accelerator and how we can help you get paid faster!  Don’t wait until 60, 90 or 120 days for you outstanding invoices.  The sooner you react, the sooner you can get paid the money you are owed!

Call me, David, directly at 888-780-1333 for a free overview of the tools that can help you motivate your customers and patients to pay you sooner, while maintaining your good relationship with them.

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The Importance of Cash Flow

5 Sep

Importance-of-Cash-Flow1

 

Cash flow is the life blood of businesses and there are many businesses and practices that have cash flow problems.  Since 1970 Transworld Systems has been working with small and medium sized businesses and practices to improve their accounts receivable and increase their cash flow!

Transworld Systems can improve your accounts receivable and increase cash flow with Accelerator by recovering your money faster!  Contact me  today to learn more about how we can help you!

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Your A/R is Leaking!

27 Jun

Accounts Receivable depreciate in value.  Everyone knows that the older an account gets, the harder it is to collect.

What they may not realize is the extent that their money is evaporating from accounts that have not yet been collected.  According to the US Commerce Department study indicated by the graph below, accounts over 90 days depreciate at a rate of .5% every day that they are not collected.

By the time an account reaches 180 days, the threshhold at which most businesses and medical practices throw up their hands and assign the account to a collection agency, 70% of the value of the account will never be recovered by anyone.  They have already spent considerable time and money in chasing the account in-house.  That time and money is gone, as is the collectibility of the account.

depreciation schedule

But, there is a better way.  According to the Dartnell Institute of Business, the average cost of collecting a slow-pay account in-house is $31.60 each.  Using an outsourcing partner to do it not only gets the account collected sooner, before it depreciates, but can generally save the business a majority of their cost to do it as well.  Relationships with customers/patients can be retained, cash flow increased, and staff has more time to do productive things, rather than chasing the patients for money.

I ca show you in a 22 minute A/R strategy session by phone if the tools that I use can help your business.  Respond to me via the form below and we can make an appointment to talk briefly.  Isn’t it worth a 22 minute investment to see how much your cash flow can improve?

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6 Tips To Selecting a Collection Agency

28 May

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Hiring a collection agency to help in the recovery of past due payments has become part of how businesses run today. However, there are some things you need to know before you go and hire the agency that your Uncle Fred recommended that is down on Main St. Below are some tips to help you on your search!

  1. Look for a debt collection agency with experience in your industry. If your business is a dental practice, medical office, law firm or specializes in a trade such as plumbing then your collection agency of choice should have experience in those areas.
  2. Does your collection agency perform background checks on the collectors?
  3. Is the agency compliant in all federal and state regulations? You could be liable for heavy fines if they are not.
  4. Make sure to fully understand the fee structure of the collection agency. Do they charge a flat fee or is it percentage based? Percentage based agencies generally focus on larger balance accounts leaving small to medium sized, older accounts, unattended, which impacts your recovery rate.
  5. What is their visibility? Good collection agencies should have a strong online presence, visible leadership team and an easy way to maintain two way communication.
  6. How long have they been around? Make sure they are a stable company with solid references before hiring.

Six easy steps to follow could be the difference between recovering your money or going out of business!!

For more information on selecting the best collection agency for your business/practice, respond to me through the contact form below.

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Top 10 Tips To Improve Collections (Part 10)

28 May

It’s a problem faced by virtually every business and medical practice – how to deal with customers / patients who pay their bill late, or not at all.  While customers and patients expect prompt and professional service, they don’t always meet the same standard when it comes to paying their bill.

Accounts not paid promptly can severely impact the cash flow of a business or practice.  A clearly defined and carefully communicated, yet diplomatic payment policy, may help avoid difficult collections situations.

Tip #10 (finally, right?)

REMEMBER THAT NOBODY COLLECTS EVERY ACCOUNT

Even with a carefully designed and implemented plan for follow-up and collections, there are a few accounts that will never be collected.  Save your business/practice time and money by identifying these accounts early in the process.  At the same time, your business/practice will benefit from the improved cash flow from the vast majority of accounts that do pay.

Developing and implementing a sound collections policy and strategy is a vital part of running a successful business or medical/dental practice.  Follow these 10 Tips, and watch your business/practice thrive while retaining a good professional relationship with your customers and patients

If you would like to receive a document with all of the Ten Tips included, please respond to me with your email address and a request for the document, and I will send it out right away.

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