A few months back, one of our clients asked if we sent out
batch settlement letters, and they were shocked to hear that we didn’t do
that. I tried to explain that sending
out blind settlement offers was literally begging for payments, and totally
undermined everything that gave us authority.
They eventually came around to our mindset, but we had to explain a
number of things.
If Your Best Friend Jumped Off A Bridge ...
Larger agencies often send out batches of settlement
letters, especially on outstanding accounts that have been reassigned to their
second, third or even later collection vendor – they do this with the concept
that if 1,000 letters are sent out and 10 accounts pay, it was a worthwhile
exercise. What they aren’t looking at,
and certainly they don’t tell the creditor is that a human set of eyes won’t
even look at the remaining 990 files, and only a token amount of money will be
recovered.
Back in the ‘good old days’, a letter was twenty cents and a
phone call was a dollar – now a letter is a dollar, and a phone call is
virtually free. The concept of ‘first
letter, second letter, final demand, settlement letter, legal letter’ is
outdated and no longer works, so batch lettering should be done sparingly, and
be monitored to make sure the collection agency at least breaks even on the
ever-growing postage cost.
Really, batch lettering settlement offers is the epitomy of laziness -- it's a poor subsitute for a managed portfolio where these collection accounts are assigned to a collection agent and worked personally.
Authority vs. Begging
The reason that consumers pay a collection agency is that
they can present themselves as an authority figure. A collection agency can affect someone’s
credit rating, or even orchestrate a court action to secure a balance. On an individual basis, collection agents can
set themselves up as an authority figure by showing they know the consumer’s
social insurance number, date of birth, credit history, and source of
income. With that authority, it’s
possible to negotiate arrangements – the authority is the leverage that causes
the payment to happen, rather than the consumer paying the creditor before the account
comes to collection.
So why would you want to throw that authority away by
sending out a letter indicating you’ll take anything less than the balance plus
accrued interest?
The Right Way To Do
Things
Certainly creditors want to give their collection agency
leeway to settle accounts – often they will give ‘blanket settlement authority’
on their accounts, so they don’t need to be involved in individual
accounts. However, just because a client
might give 80% settlement doesn’t mean they want the agency throwing
settlements out willy-nilly and forfeiting 20% of their receivables.
Settlements should be, in my mind, entertained on an
individual basis – they should give the collection agency and the collection
agent the ability to be lenient when the situation warrants it. The
whole point of a settlement, after all, is a speedy and painless resolution for
all parties to shake hands, exchange funds without getting into dispute,
extensive negotiation, or payment schedules.
It can be used to show leniency when someone has to borrow funds to
resolve their debt, or is simply not in a position to resolve their account in
the short-term.
An agency has been entrusted with millions of dollars in
receivables, and they should use discretion and judgment when arranging
settlements. Not just throwing letters
to the wind, and hoping for a low-manpower-requirement return in exchange for
wasting authority and diligence. Just
because an account might have aged doesn’t mean it can’t be resolved in full
most of the time, with settlements being the exception to the rule.l
That’s my opinion, and I’m sure others in our industry have
their own – feel free to post a comment or email me if you have an opinion, I’m
always glad to hear from other credit and collection professionals. I can be reached directly at 226-946-1730.
Thanks kindly,
Blair DeMarco-Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
226-946-1730
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