Getting your money: Why debt collection is not the solution

In any business there is usually an ongoing need to manage debtors. While this process is usually managed by the staff within the business, the option to engage a debt collector can be appealing. In some cases, large debts account for a chunk of your outstanding total. In other cases, the accumulation of smaller debts causes the backlog.

From the conversations I’ve had with doctors like you, I’ve realised that people have an inflated belief of the expected benefits of engaging a debt collection agency. In fact, the process is nothing out of the ordinary: send a letter, make a couple of calls, hopefully get a result and, if not, write it off and move on.

I’d like to look at some common misconceptions to show you why it’s not all it’s cracked up to be.

I’m more likely to get my money.

Debt collection agencies run on very lean margins.  This means they are structured as a volume-based business. They cannot afford to spend a lot of resources chasing down each old bill so they need to work on an 80/20 rule: 80% of debts are recovered and 20% are written off.

Should you opt to manage debt collection internally using a staff member, you at least have the peace of mind that your staff are chasing these debts to actually recover them, not with one eye on their own bottom line. So in fact, you’re not more likely to get your money if you engage a debt collector.

Engaging a debt collector means I won’t need to go to court.

Many doctors I’ve met consider a debt collection agency to be a substitute for going to court.

Unfortunately, this is not the case. If the debt collector is unable to recover your debt, they cannot actually enforce the debt.  If you wish to pursue the debt further, your next option is court.

As you are no doubt aware, the costs of going to court can mount up very quickly.  In fact, even the cost of representing yourself in the small claims tribunal can be more than the value of that unpaid account.

Unless you’re prepared to go to court, debt collection is just an interim step.

Sadly, dishonest patients know this.

The debt collector will apply a bad credit rating.

You’ve chased the debt yourself. You’ve engaged a debt collector. Still nothing. Well, at least they didn’t walk away scot-free, right? You can register a black mark on their credit record, right?

Wrong.

The only bodies that can register anything on a person’s credit rating are credit providers (as defined by law and include bodies such as banks, credit card companies, telcos and utilities).

Since you or the debt collector are not included in the definition of a credit provider, the unfortunate truth is that you must get the debt proved in court to get a bad credit rating applied.

Which brings us back to the question I posed above: would you go to court over a bill worth less than the legal fees you would incur?

Probably not.

Debt collectors offer an advantage.

It is clear from my discussions with doctors that when it comes to recovering debts, there is the view that a debt collector offers something that you or your staff can’t do.

So what are they doing that your own internal admin staff can’t do? Well, nothing. The only difference is that a letter from a debt collector may seem more important than a letter from your practice.

In my opinion, cutting through the marketing and optimism, debt collectors offer little advantage over managing your unpaid accounts yourself (or having your admin staff do it on your behalf).

In my next blog, I’ll discuss what tactics you can use for recovering 100% of your debts.

Until then.