Unusual Collection Methods
( Originally Published 1918 )
No matter how careful, how cautious, how capable the credit man; no matter how experienced, how resourceful, how persuasive the collection manager—there always will be some bad debts. Sometimes conditions change after credits are granted. Sometimes the credit man is ,the victim of circumstances or of deliberate schemes to gain credit. Sometimes, apparently, the very character of the debtor changes, and the man who has been noted for promptness of payment becomes poor pay.
The ordinary debtor will usually succumb to ordinary collection methods. The extraordinary debtor requires something more forceful. There is, of course, always the debtor who cannot pay just simply because he has not, and cannot get, the money to pay, and with whom ordinary or extraordinary collection methods avail nothing. The majority of those who fail to pay their debts are not, however, of this class, but are just plain dead-beats who are trying to get something for nothing. In such cases almost any device within the limits of the law is justifiable.
Some of these devices are not entirely nice. There are unpleasant elements in the collection business. The collector of bad debts cannot be too squeamish, and must at times be even hard-hearted, or else be unfaithful to his trust. As a rule, however, the collection of the debts usually denominated uncollectible is not a matter of hard-heartedness. It is merely a matching of wits between the collection manager and the delinquent debtor.
The methods of collecting discussed in this chapter may be classed as unusual or special methods. Not all of them are intended for the very hard cases. The telephone call, credit threats, the follow-up draft, instalment collections, and others, are, in fact, of but little avail in difficult cases. The majority of the plans suggested are, however, what might be described as emergency methods—methods to be tried when all others fail.
The Telephone Call
The telephone call is, a comparatively mild collection measure—good for the ordinary slow account, but of little avail for really hard cases because of the facility with which the debtor may shut off its importunities when they become annoying. For the ordinary overdue account, however, its effect is as good as a personal interview. In-deed, when the telephone message comes from one of the more important officers of the concern it may be even better, as having greater weight than the personal call of a collector, who at the best is but a subordinate.
The telephone call is not always available. There must first be a telephone through which the debtor may be reached, and, second, there must be a certain willingness on his part to listen, or an ability on the part of the other party to compel him to. listen, as otherwise the debtor will bring the conversation to an abrupt conclusion by hanging up the receiver.
The telephone call may be used at any stage of a collection, serves as a convenient reminder on the due day of an account if a remittance does not come in promptly, and is equally available if the matter has dragged along for months with promises broken, letters unanswered and collections practically defied. The matter can be discussed over the telephone with all the freedom of a personal interview. An explanation of the delay may be asked, the importance of prompt payment be urged, and the whole matter gone into with as much detail as the circumstances seem to warrant. Persuasion, entreaty, and even abuse may be used. Matters that could not be written without danger of a suit for libel, or blackmail, may safely be talked over the telephone.
It is easy, under such circumstances, to make a very strong appeal for money without possibility of offense—an appeal which the debtor will find it difficult to resist. Here, however, comes in the great defect in a telephone collection call: the money cannot be secured then and there. The debtor's mind may be brought up to the point of payment; the most sincere promises may be se-cured; but the actual immediate money cannot; and this must await the chilling effect of the debtor's sober second thought. If the debtor has been brought to the paying point the collection manager may, of course, suggest sending at once for the money; but, if this is not feasible or not acceptable to the debtor, he must await a remittance—a remittance which may be long in coming.
The Registered Letter
Where a delinquent debtor pays no attention to letters and is not accessible to personal calls or telephone communication, the registered letter may occasionally be used to good effect. This letter calls attention to the fact that other letters have not been answered, or states the condition of the account, with any other details or circumstances which may assist the collection.
The effectiveness of the registered letter is due to its semi-official character. Registry is formal and unusual; and when the delinquent debtor receives a registered letter in reference to his account he will, in most cases, conclude that the matter is becoming serious, and that there must be more to it than appears on the surface. He knows that the letter was registered, and that he has signed a receipt for it, but does not know why this was done, or what use is to be made of the receipt. His imagination is then apt to prove a valuable ally for the collection manager.
It is always a distinct point gained when a delinquent debtor can be brought into personal touch, and into a formal recognition of the fact that his debt exists; and this the registered letter will in most cases bring about.
In any written communication relating to an indebtedness much care must be taken, as already stated, to avoid liability under the laws against libel and blackmail. Any-thing written is in black and white; and, if it steps beyond the limits of the law, the sender has himself supplied proof for his own conviction.
This caution is still more imperative with regard to an open communication, such as a telegram, than with a letter, for here the lines are much more closely drawn. The telegram is in a sense public property; and about all that can safely be brought into it is an inquiry as to when a remittance may be expected.
If, however, the telegram is used at the proper time, it is sometimes very effective, weak though its wording must be. Perhaps a special letter has been written, strongly urging payment of the account in whole or in part. The telegram may then be used as a follow-up, though in form perhaps merely a reminder, such as: "Wrote you on the 25th. When may we expect a remittance?" Or it is sometimes used effectively where a delinquent debtor has sent in a bill for further goods, when a telegram goes forward: "Order received. We cannot ship until payment has been made on overdue account. When will you remit? Answer." Or the telegram may be used independently, as: "We must have $50 today. Can you send it? Answer."
In any of these cases the telegram undoubtedly does have an "urgent" effect. The fact that it is ordinarily used only for emergency business of an immediate or exceptionally important nature gives it more weight than other forms of communication possess. The cost is small, and, if there is any prospect of its producing results, it may well be tried.
It has already been suggested that in cases where the creditor's draft is returned unpaid, a second draft may be sent out immediately, and will occasionally produce results. It should be accompanied by a letter from the creditor, mentioning the return of the first draft, and taking for granted that this was due to some misunderstanding on the debtor's part. This is desirable, first as giving opportunity for some good collection talk, and second to prevent any misapprehension on the debtor's part that the second demand is merely an accidental repetition of the first. Such a letter will also impress the debtor with his creditor's persistence; and this effect of harrassing persistency is increased by sending the second draft to a different bank, as the debtor then feels himself attacked on all sides, and, being uncertain as to how far this process may be carried, fears the effect on his credit —if he has any.
An overdue account may sometimes be secured piece-meal when it cannot be secured "in bulk." In cases of this kind, where the debtor is either unable or unwilling to pay the full amount, the collector may suggest that payment be made on the instalment plan. His argument for this course has no weight with the professional dead-beat; but with the ordinary debtor who is merely in a hard place, it is sometimes very effective. He suggests that the full amount is more than the debtor can be expected to pay at one time, but that, of course, he wishes to clear off the troublesome indebtedness as soon as he can, and that a payment of, say $1 a week, or so much a month, or any other arrangement that may suit the particular case, would be the proper way to meet the obligation. This suggestion, if tactfully made, and adapted to the circumstances of the debtor, will frequently be successful.
Offer of Concession
A method somewhat akin to the foregoing, and some-times employed with success, is to make a concession for immediate payment. In such case, the collector pleads a special emergency requiring cash—so pressing an emergency that it must be had at any cost, and therefore his concern is willing to settle up the present indebtedness for a sum so much below the full amount due as to make the proposition attractive. When this is done, it gives the collector a new argument, i. e., the benefit to the debtor. "Here," he says, "is an opportunity to clear off this long outstanding and troublesome indebtedness for but a portion of its real amount. It is in fact a bargain offering. Here is a $25 indebtedness that may be settled with a $20 bill. How could $5 be made more easily?"
The money-saved argument has no weight with the "deadbeat" debtor who is trying to avoid payment of the whole; but with those who really intend to pay at some future time, it is usually effective, though a bad precedent to establish.
It is a fact that a bank can secure payment of a claim where an individual or a firm cannot, as its semi-public position gives it much greater weight than appertains to individuals and ordinary business concerns. If, therefore, a claim is in the form of a note, or can be placed in the form of a note, and this note is discounted or deposited with the bank for collection, it is more likely to be paid than if left in the form of a bill, or presented by the individual or concern to whom it was given.
It is frequently possible to secure a note in settlement of a claim when, at least for the time, it is absolutely impossible to secure cash. This note is more likely to be paid than the open account; and, if it is deposited with the bank for discount or collection, the chances for payment are better still.
In collection work threats must be used with much discretion, or they may involve the creditor in very unpleasant legal entanglements. The credit threat, however, is hardly of this class. In this case the creditor writes stating that he is a member of some credit association, which requires its members to report all bad debts. He therefore finds himself in an embarrassing position, as he does not want to report his customer, and yet fears trouble with the association if he does not, the debt having run so long. He may touch incidentally upon the disagreeable results for the debtor if this report is made—not in a threatening way, but merely as a matter of fact in connection with the operations of his credit association. Under these circumstances he asks the debtor to come to their mutual relief with a payment. The method is frequently successful, though not recommended.
The Black List
This is similar to the credit threat. A personal letter is written to the debtor, stating the amount overdue, and informing him that the writer is getting out a "black list" for the mercantile reporting agency, that he feels sure that the debtor does not wish his name to be included in this list, and that he therefore trusts the debtor will remit at once in settlement of his account. This will often be effective, as the debtor naturally does not wish to go on record as a bad credit risk, and does not know how widely his delinquencies may be published if he refuses to settle. On the other hand, the plan must be used with caution, as in some states the law in regard to collection of debts is so strict that such threats are blackmail, and render the user liable to heavy penalties.
Sending Out the Boss
This method is somewhat akin to that of the collection letter signed by the president or other high official of the concern, used as having greater weight than the ordinary communication. A call is made by one of the proprietors or officials of the concern. The method is, of course, available only where the debtor is reasonably close at hand and accessible to personal calls, and where the amount is sufficient to justify the effort.
If the creditor concern is a partnership, one of the partners goes out, or someone else well up in the counsels of the firm; if a corporation, one of the higher officials makes the call. In either case, the effect is entirely different from that produced when a collector calls. The proprietor or the official of the concern cannot be treated like an ordinary collector. He carries a weight and an influence that is very effective, and, if he is at all tactful and able, his call will usually produce payment, or, if payment cannot be had then, will establish relations and an understanding of the conditions that will eventually result in payment.
Turning Accounts Into Judgments
An open account expires after a certain time, the period—fixed by statute—varying widely in the different states. The statute begins to run from the time the debt is incurred, or, if there have been payments upon it, from the time of the last payment. If, therefore, payments—even very small ones—can be secured from time to time, there is no danger of the claim expiring by limitation. If, however, no payment or written recognition of the debt can be secured, suit should be brought before the time of expiration.
When suit is brought and judgment obtained, this judgment has a life of its own, also fixed by statute, and varying in the different states; and the claim is secure for this period.
Occasionally, where suit might be embarrassing to the debtor, and he is willing to acknowledge service of notice, though he is not willing or not able to pay the ac-count, suit is begun; but after service has been obtained on the defendant, the matter is allowed to drift along. In this way an account may be kept alive for years; in fact, it does not expire by limitation, and can be brought to a conclusion only by the debtor's appeal to the courts for a dismissal. Under such an arrangement, the creditor can appear in court at any time, show that the long-continued suspension of proceedings was by mutual consent, and proceed with his suit.
Writing to Friends
Writing must be indulged in with discretion when the collection of debts is the subject matter. When, how-ever, a delinquent debtor refuses to answer communications, and the creditor concern has or can secure the ad-dresses of friends, references or connections of the debtor, it is sometimes very effective to intimate to him that, if no response is received to the letter, the concern will write to one or more of these persons—merely, of course, to secure information as to the debtor's whereabouts.
This will often bring a reply; but, if it fails to do so, it is then entirely allowable to write to these other parties, stating that the delinquent is indebted to the concern, that letters written to him have received no attention, and asking for information as to his whereabouts. This proceeding may bring a certain amount of pressure to bear upon the debtor which will lead to payment of his account. It may happen, also, that friends or relatives will pay such an account themselves, rather than allow the matter to become public—and this is especially likely if the debtor has resorted to underhanded or fraudulent means of evading payment.
As an instance of the successful use of this method, the case may be cited of a western music house which sold a piano on the instalment plan, securing itself by chattel mortgage. The instalments were paid in whole or in part for a few months, when it was discovered that the customer—who was a woman—had borrowed $100 on the piano, giving a chattel mortgage to secure the loan; and that this second chattel mortgage had been placed on record, thus taking precedence of the purchase money mortgage, which had not been placed on record.
The customer's act was, of course, fraudulent, and might have been made a very serious matter for her, but this would not have saved the music house from loss. The collection manager had, however, in the course of the transaction, secured the address of the lady's mother, and at this juncture telegraphed her to come at once, as her daughter was in serious trouble. The telegram was signed with the name of the music house. The mother came, called at the music house, and, after the serious nature of her daughter's offense had been explained, paid the $100 which had been borrowed on the piano, and the instrument was thereupon returned to the firm.
The Awkward Call
This is an unpleasant but frequently effective method of collecting bad accounts. A festivity is perhaps in progress at the debtor's house. The collector, having ascertained this fact, calls, inquires for the debtor, and, if he can secure an entry, presents his account and insists on payment. The debtor naturally demurs. The col-lector insists more urgently and more loudly; the attention of the guests is attracted; and the debtor naturally finds the situation very embarrassing. If he be strong of mind and muscle he will occasionally make it embarrassing for the collector, and add to his friends' entertainment by a number not scheduled on the original program. Barring such unhappy incidents, however, the final result of the call depends entirely upon the ability of the collector and the financial resources of the debtor. If the collector is persistent, and refuses to be daunted by threats or cajoled by promises, the money, in whole or in part, is very apt to be forthcoming.
The collector may vary this proceeding in several ways. He may present his bill when the victim is attending an entertainment in the house of a friend, or he may interrupt him in the middle of an important business interview. If the debtor is an employee, the presentation of the bill at his place of employment may be resorted to, but, as this might result in the employee's discharge and thus incapacitate him from paying the debt, a threat of resorting to this measure may be more effective than its actual fulfilment.
The Sweating Process
This is another variation of the awkward call, and requires a collector of good conversational powers, considerable nerve, and, preferably, some physical ability. He calls with the overdue account at the debtor's house, and simply stays there until he gets his money, or becomes convinced that no money is to be had. As may be imagined, the process is a disagreeable one for both col-lector and debtor. Argument, persuasion, threats, and discussion are all used according to the conditions, until either collector or debtor becomes exhausted and gives up.
This method, of course, requires some judgment in its use, and is available only with a certain class of accounts; but with these it is very effective.
Sometimes, when a single account is too small to justify the creditor in taking legal action, he may get other creditors of the particular delinquent to join issues, so that the combined amount is enough to justify such action as may seem best. As debtors of the "deadbeat" class will owe money in many different quarters, this is usually a simple and very possible plan, and is sometimes productive of excellent results.
It very frequently happens that the debtor has concealed property, debts owing to him, or perhaps wages due him; and, if these can be discovered, garnishee proceedings may enable the creditor to liquidate his account. The method is one requiring some detective ability in tracing the property or debts of the delinquent, and also a certain degree of acquaintance with the law of the particular state; but it is frequently productive of results.
Its possibilities are illustrated by the case of a doctor in very excellent practice, who had money, but did not consider it necessary to use this to pay his debts. The doctor owed $75 to a medical- supply house, which the concern was entirely unable to collect, and they finally placed the matter in the hands of a collection agency. After a study of the conditions, a representative of the agency called on the doctor in the character of a patient, and after the consultation pulled out his pocket-book to pay the doctor's fee, but on looking into it found that he had not the necessary amount with him. Accordingly he asked the doctor for a blank check, and when this was furnished, he filled the check in properly, inserting the name of his own bank, and turned it over to the doctor in payment. He had, of course, noted the name of the doctor's bank, and on garnisheeing this bank it was found that the debtor had a deposit there of over $600. The collection was made without further trouble.
When a claim has been turned into a judgment, the debtor may, in most states, be brought before the court on supplementary proceedings, and be forced to make a full disclosure of his financial condition. It is but seldom that a debtor, especially a "deadbeat," is actually penniless, or unable to secure money; and these supplementary examinations may, on occasion, be made so searching and so disagreeable that he will choose payment of the debt as the lesser evil. They sometimes reveal facts not only embarrassing but incriminating, or of such a nature as would prevent the debtor's discharge in bankruptcy proceedings if he should at any time wish to resort to them.
A small account is, of course, not worth following so far; but where large amounts are involved, a rigorous examination, perhaps repeated from time to time, is worth while, and is frequently productive of results.