Collecting Bad Debt: Working with a Debt Collection Agency

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By Daniel Casciato

As a patient’s account ages, the chances of collecting on it decrease dramatically. It’s expensive to carry accounts that you will not be able to collect using the methods at your disposal.

“It’s often a better use of your office’s time and resources to concentrate on other aspects of your business,” says Michelle Dunn, Plymouth, NH-based author of Starting a Collection Agency, How to Make Money Collecting Money.  “A professional collection service can assist you in collecting accounts that remain delinquent.”

Debt collectors have a vast knowledge of collection techniques, technology and compliance issues. Using a professional collection service will save time and likely yield better results.

“Collection agencies should be used as a partnership between the medical practice and the agency,” says Tom Corson-Knowles, president and CEO of American Asset Solutions, LLC, based in Granger, IN. “It should also be viewed as a long-term relationship because if you have delinquent accounts today, you’ll likely have them in the future as well.”

It’s a good rule of thumb to not hire an outside agency to collect until at least six months of nonpayment. If you send the account to an agency just 30 days after nonpayment, your patients may be put off.

“Maybe they simply misplaced the bill or were on vacation,” says Corson-Knowles. “You should send another bill and confirm that the patient received it and ask them kindly to pay. After six months of nonpayment, it’s best to go with a collection agency. If you wait any longer, the likelihood of collecting will go way down.”

Alexis A. Moore, a risk management and credit collections executive consultant in Sacramento, CA, believes the sooner the better when it comes to hiring a credit collections agency. Once a patient’s account is 30 days past due, she says it’s time to place a call.

“After having phone calls not returned and Accounts/Receivables invoices mailed and no response, it’s time to get a collection agency or a risk management and credit collections executive consultant involved,” she says. “Nine times out of ten, if they are having problems with your account, they’re having problems paying other bills.”

It might just take a few calls to help identify that the patient is no longer at the address or not being cooperative because of the style of communication the office accounting staff is utilizing. In fact, you can even contact the health insurance company to verify they are still located at the same address, or if they have moved. But if you still can’t track them down, then Moore says to begin the process of finding a collections agency.

“It is always better for the office to have a positive environment and good patient relationships,” Moore adds. “Leave the dirty job of collections and risk management to the professionals so the office environment stays positive.”

Warning signs to be aware of

Dunn says that the following signs indicate the need to work with a collection service:

  • A new patient doesn’t respond to the first notice. For some unknown reason, the patient will not or cannot pay.
  • Payment terms fail. In some cases irresponsible patients pay when and if they want to. This group is responsible for 25 to 50 percent of the cost of collections. “Cost and potential losses are reduced by quick action,” Dunn adds.
  • The patient makes repetitious, unfounded complaints.
  • The patient totally denies responsibility. Without professional help, these accounts are usually written off as total losses.
  • Delinquency coexists with serious marital difficulties. These also require professional collection help, with the added urgency of obtaining payment before the disappearance of one or both of the responsible parties.
  • Obvious financial irresponsibility is apparent. In such cases, little hope exists for voluntary payments and a quick settlement.
  • There is an unauthorized transfer or disposal of goods delivered in a conditional sales contract.
  • Repeated delinquencies occur along frequent changes of address or jobs. “This group is responsible for 90% of all skips,” Dunn says. “A skip is someone who has moved without informing creditors or leaving a forwarding address. The chance of finding this person and collecting a debt will decrease over time, so quick action is important.”

Questions to ask your collection agency

So you’ve exhausted all your resources to tracking down a bad debt, and now you need to hire a collections agency. As you would for any vendor, it’s highly recommended to do your due diligence and hire the right agency for your practice. When selecting a collection agency to work with, be sure to ask these questions:

What kind of accounts do you specialize in? What percentage of your accounts are medical in nature?

“You only want agencies who specialize in medical collections,” says Corson-Knowles. “It’s a completely different market than agencies who collect auto loans. If you hire an agency that doesn’t specialize in medical accounts to collect medical accounts, you will be very disappointed and so will your customers.”

Can you tell me about the company’s training program for collectors?

“It’s very important you understand how the collection agency trains their employees,” says Corson-Knowles. “If the collectors have very little training, it will show and it means the management is not doing their job. Agencies who don’t train collectors extensively are far more likely to receive complaints and abuse customers. The last thing you want is your customers being abused by a collection agency. It’s all too commonplace today.”

How have you performed in the past on accounts like the ones we’re considering placing with you?

“You want to find out how well they think they can perform,” Corson-Knowles explains. “This is important so that both parties know what to expect beforehand.”

If I sent x number of dollars of accounts each month, would you be able to handle them?

This is an important question to ask if the agency has the capacity to handle your accounts.

“Some agencies will only take large placements and some prefer smaller,” says Corson-Knowles. “Make sure your needs fit with the agency’s capabilities. Above all, remember that your collection agency is your business partner–they help make sure your receivables come in as quickly as possible and keep your practice alive. If there are any problems at all, be quick to communicate with the agency and work together to solve them.”

Alternatives to hiring debt collection agencies

An alternative to hiring a debt collection agency that your practice can consider is the hiring of independent risk management and credit collection independent consultants.

“They will provide the medical practice with strategies for how to prevent receivables from going delinquent, train the accounting staff and office staff in the art of accounts receivable management and collections, provide credit collection services as needed without the negative stigma associated with working with a 3rd party collection agency and offer the practice the overall skills as a whole to work to maintain profits and not have the Accounts/Receivables issues in the future,” says Moore.

Another alternative is to bypass using a collection service is taking care of it in-house.

“They can also cut down on using a collection service by having an in-house credit policy and manager and educating them on debt collections,” says Dunn. “Most bad debt can be avoided by screening patients and not extending credit when credit is not due, and keeping an eye on accounts so that you can take action before there is a problem.”