March 04, 2010

To Settle or Not to Settle. That is the Question.

A nationally syndicated radio host dedicated to financial security is famous for calling bill collectors scum. He often counsels listeners to offer creditors and collection agencies 25 to 50 cents on the dollar and if they refuse hang up and continue to do that until they agree. The advice is predicated on the idea that the agency and original creditor can afford to waive 50 to 75% of their receivables and still remain in business. The advice is predicated on the idea that the financial hardship of the consumer is transferable to the business. The advice is predicated on the notion that the consumer has the ability to receive goods and services at 100% of the value and because of no fault of the business, pay less than if they had paid in full the day the service was received.

There is a common belief in our society that bill collectors are happy with something as opposed to nothing. This belief amongst consumers creates difficult expectations when they actually end up in collections. This expectation also creates a difficult situation for the original creditor. The belief of the consumer can be transferred to the collection agency and is often translated to the original consumer and there is a pressure to settle an account. Then a entire set of new questions arises, should I settle at all, how much do I settle the account for, or ultimately can I as a business owner afford to receive less than expected.

These questions are best answered by someone with the experience to know when it’s necessary and for how much. In many situations a settlement is a knee jerk reaction to someone in financial difficulty, and trying to recover. In an economy where real unemployment is over 15%, many jump at the idea of settling an account for the individual who is suffering economic hardship. In some situations settling may be the best option but there are many other options that should be addressed first.

• Payments over time
• Temporary reduction in payments
• Renegotiation of interest rates

Yet there are some consumers who have an income and have simply deprioritized the bill in question and are offering a settlement in an effort to save some money. An experienced Collection Professional is the best judge of the situation and can negotiate the best possible outcome. In short, must you as a business owner settle your accounts in order to maintain high recovery rates? Not necessarily, working with seasoned professionals will be the only way to know for sure.

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