Bad debts are worth collecting

Nation's Business, May, 1989 by Charles A. Jaffe

Maurice H. Margotta Jr., vice president and director of education for the National Association of Credit Management, in Columbia, Md., says of customers' hesitancy: "You have to ask if they are being sensitive because they are trying to hide something or because they feel that this is an interrogation."

The information that most collection officials want on a credit application includes the place of business, home addresses, telephone and Social Security numbers of principals and any other parties who may guarantee the debt, landlord's name and address where applicable, bank-account numbers, and credit references.

A written authorization will provide access to the status of a customer's bank accounts. Many businesses, after running conventional credit checks, retain this authorization for use in case the customer skips.

In short, knowing as much as possible about the customer leads to the best chance of recovering a bad debt, regardless of the reason for the skip. Information that may seem frivolous can lead to the delinquent customer. This is true particularly in smaller industries where many of the players know one another.

Knowing friends and acquaintances of customers, for example, has helped Spence Willard solve some of his bad-debt woes. Willard, owner of All Lacrosse, a lacrosse-equipment store in Montclair, N.J., sells equipment at lacrosse tournaments around the country. On the sideline, however, he can't check a customer's credit before making a sale.

"We went to a tournament recently where a guy gave us a bad credit card," Willard recalls. "He had given us a phone number, but it was at a construction site, and the contractor he worked for had moved on by the time we called. So I called the guy who ran the tournament, who put me in touch with the club president of the guy who owed us the money, who put us in touch with our guy.

"When we finally found him, he apologized, saying he hadn't realized what had happened. We got our $192; it was too small an amount to send a collection agent after, but most of our sales fall into that category."

The credit application should, if possible, include conditions that favor the seller in case the account becomes past due. The main stipulation that collectors and lawyers want on the credit application requires the delinquent customer to pay any collection and court fees. Interest on late payments should also be specified on the application.

"Without the stipulation that the customer pay the fees and/or court costs, you might be more apt to write the debt off," says Huey Mayronne, executive director of the New Orleans-based American Recovery Association. "Making the debtor responsible for fees may make the creditor more aggressive in turning a bad debt over to a collection agency or an attorney. It may also frighten the customer into paying you over someone who doesn't have that on his credit form."

Having a customer complete a credit application is not enough. Debt-recovery experts say the application must be current if it is to be an effective skiptracing tool.