What Bills Consumers Pay First
How is a business owner sinking under ever-expanding receivables supposed to respond to our country’s current situation?
The recession shaved 11% off American’s median income before it officially ended in 2010, and according to the Federal Reserve the first three years of “recovery” shaved off another 5%.
While the wealthiest 3% saw their share of the nation’s wealth increase to 54.4% in 2013, the bottom 90% saw its share shrink from a third to a quarter — and the number of people who could afford to save for retirement dropped to merely 2 in 5.
And 35% of Americans with a credit file – 77 million people — have debt in collections averaging $5,178.
Yikes. That’s a lot of debt.
And some of it is owed to you…
Leaving Behind “The World’s Dumbest Idea…”
Economist Milton Friedman won the Nobel Prize in 1976 largely because of his book Capitalism and Freedom, which included many insights we now consider common sense but which also included the idea that a corporation existed solely to produce shareholder value.
That idea became gospel truth in corporate America and quickly came to justify such things as General Motors CEO Roger Smith shuttering auto plants in Michigan to take his company’s already stellar stock even higher. The fact that he eliminated 80,000 jobs and moved a source of American pride to Mexico didn’t matter. He did the right thing, since he made his stockholders richer.
After nearly forty years of that mentality, which arguably contributed a great deal to our current straits, Friedman’s Nobel-winning gospel truth has become “the world’s dumbest idea.” Even economists are beginning to realize that perhaps corporations serve other purposes as well.
…Catching Up With You
And that, of course, is something you’ve always known. Most entrepreneurs take great pride in the fact.
You’re not just a roofing company – you save the country energy while keeping people warm and dry. You’re not just an educator – you empower people to achieve their dreams. You’re not just a retailer – you help people express themselves and feel confident.
In fact, sometimes entrepreneurs might think too much about these other things they do, and not enough about “the dumb idea” that one reason their business exists is to provide an income for its owner.
Which brings us back to your ever-expanding receivables. It is entirely true that you value your customers like family and that you rely upon them for referrals. It is also entirely true that you perform excellent work because that’s the kind of person you are.
But you can’t stand calling people and asking them to pay you what they owe you. It’s a well-established psychological fact. You’re an entrepreneur by nature so you want to spend your time creatively. Chasing down debts depletes you of energy and can put you into a negative frame of mind – especially since you think of your customer as family and you know you earned your pay.
How Much Debt Is Created By Debt?
One thing the Federal Reserve report does not investigate is how much of the country’s outstanding debt is owed to small and mid sized businesses.
It also doesn’t explain how many people are in debt because other people are not paying their debts. If you’re carrying a balance on your credit card and you have outstanding receivables, then whose fault is it that you’re in debt?
More importantly, what’s your solution? You’re reading this because you’re wondering if anything has changed in the collections world. You know that the trade association for collection agencies, ACA International, boasts that agencies collected $55.2 billion in outstanding debts last year.
But you look at the next number they report: those agencies retained $10.4 billion, or 19%, of that as commissions.
You have to ask yourself: is it worth it to pursue people in your community for overdue debts and risk stirring up animosity when you’re going to hand over at least a fifth of anything recovered to the collections agency? Maybe you decide that it might be, and so you call a couple – only to find out that that national aggregated average is actually really good – most collections agencies take 30% to 50% of the debts they collect.
Before You Grin and Bear It
Well, something has changed in the collections world. Two things, actually.
The first one is method. The horror stories you used to hear about debt collectors publicly humiliating people by calling their neighbors or even their employers are rapidly becoming a thing of the past.
Optio understands that your customers mean a great deal to you and that you hope to preserve the relationship. So we take a respectful, purposeful, and clearly organized approach that makes it as comfortable as possible for your customer to come to terms.
We can do this much more easily than you can for the simple reason that as a third party we can focus entirely on the solution to the debt problem.
In our experience, it is far easier for your customer to deal with us as well. They don’t have to be embarrassed before someone familiar, and they don’t have to worry about running into us at the grocery store. Because of that, they tell us what’s going on and work with us to implement a payment plan.
What is Flat Fee Debt Collection?
The second thing that changed is cost.
“Flat Fee” means just what it says: rather than pay a percentage of recovered debts, you pay a pre-arranged fee per debt, and that’s it. The fees vary, but can start at less than $20 per account.
And you keep 100% of whatever we collect. If you’re owed $5,178 and you pay us $12 out of pocket to collect it and we do, you keep the entire $5,178.
You incur some risk in this arrangement because you pay the fee up front. But if your receivable exceeds the $12 fee by a substantial amount, you can see how spectacularly this could pay off if we collect even a small portion of your outstanding debts. If you had a hundred debts like that example and we collected on only one of them, you would still more than quadruple your investment in our services.
So how should you respond to this long, slow, painful recovery? We suggest you respond by getting paid for the work you did, so you can pay the people and businesses you patronize and employ. Learn how here.
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