Stages of a Debtor:

Very few people go into business with the intention of not fulfilling their financial obligations. Companies usually become debtors after months, if not years, of financial hard times coupled with every effort possible to keep afloat. In our experience, all debtor companies go through three very distinct stages.

Stage 1, the owner has the best of intentions. The company is starting to experience some hard times but genuinely thinks it is only temporary. At this stage, the owner still has a positive outlook and wants to try to do the right thing when it comes to paying his creditors. Unfortunately, he cannot pay everyone in full so he works out a partial payment arrangement with most of his suppliers.

When a debtor is in Stage 1 they begin to act a little different and the signs of poor cash flow start to show:

Stage 1: Warning Signs

Your customer wants to make partial payments in an effort to get you paid.
It takes you two or three calls before someone will call you back about your bill.
They tell you that the check was mailed already when it wasn't.

Remember, during this stage the debtor thinks everything is going to be ok so his attitude is usually good and his excuses sound genuine. Unfortunately, Stage 2 is looming:

Stage 2: Warning Signs

Cash flow is worse and the bills are getting out of control. Things go from bad to worse and he simply can't afford to keep up with his payment plans. He hasn't given up though, so his excuses still sound genuine; but they are getting more and more creative every day. Now he has to prioritize. When he finishes a job or gets paid from one of his customers he sits down with all of his bills and simply puts them in priority from MUST PAY to NEED TO PAY then down to WON'T PAY. He is now officially in survival mode. Some of the bills that fall into each pile are:

Need to Pay (Unlikely to pay)
Rent, payroll, the electric bill, the phone bill, top suppliers that they cannot do without.

Should pay (But will not)
Advertising Bills, office supplies, middle tier suppliers who provide products that they can get elsewhere.

Will never pay
Memberships, subscriptions, low tier suppliers they do not need, vendors with toothless collection policies, small balances that they know no one will ever pursue.

Even though he is in survival mode, he is still holding out hope that things will get better; but he is walking the cash flow tight rope. One false move and his company will go under. Where do you think you fall on his priority list?

Stage 3:

The debtor's situation is hopeless. He can't afford to pay anyone anything at all. No longer do even his preferred vendors receive checks. When he arrives at stage 3, the company will be closing its doors shortly and is going to file for bankruptcy/insolvency. Right before he enters this stage, the warning signs are clear and easy to read:

Stage 3 Warning signs

Stops returning calls
No more excuses, just states, "I can't pay you"
All partial payments cease
Rumours of the company's demise are rampant in the industry

Simply put, this debt is uncollectible. The person who normally tried to make the best of a bad situation has given up and the company will close its doors soon. In most cases, even if you have a personal guarantee it isn't worth the paper it is printed on. The personal guarantee is signed by someone who has probably poured every last penny he had into trying to keep his company afloat. Since the company doesn't have any cash flow, the time to use a collection agency has long passed.

The time to place a debtor company with a collection agency is in stage one. This is where they are paying accounts based upon needs. When an experienced collection agency, such as Deanem Collections Ltd, contacts the debtor company as a third party, it pushes your status from a "should be paid" to a "need to be paid".

The power of an experienced collection agency should not be overlooked.
I know many people say, "I do not want to pay a collection agency when I could have collected the money myself." While that may seem sensible, think about all the debtors that have filed for bankruptcy, dissolved their company's and just plain went out of business. They all had one thing in common. They gave you red flags. They did not pay like clockwork and then fold!

Keep in mind also that when you are placing an account, the older the debt, the higher the rates are for collections.