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                                                                                                        Fred's Bio

Start the new year off right
December 29, 2009

Consider joining a professional organization such as the National Association of Credit Management to start the new year off right.

NACM® was founded in 1896 to promote good laws for sound credit, protect businesses against fraudulent debtors, improve the interchange of credit information, develop better credit practices and methods, and establish a code of ethics.

Education and research programs illustrate NACM’s awareness of the complex needs of credit management today. Membership in an NACM-affiliated credit association includes membership in the National Association. Members of NACM® are credit and financial executives, primarily representing manufacturers, wholesalers, financial institutions and varied service organizations.

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How are you budgeting your cash?
September 08, 2009

The new owner of a small business kept his invoices in one cigar box and his cash in another. At the end of the month he would pay the bill in one box from the money in the other and then pocket the difference. At the end of they year taxes and insurance came due, and not having sufficient funds to pay them he went out of business.

If you plan to be in business at least 5 years, have a 5-year cash budget. Know how much you will need each year to cover expenses (and your salary & benefits.) For the current year you need to know how much cash you will need for each month to avoid year-end surprises. Lastly, you need to know how much money you need for each week in the coming month.

Compare actual results against your cash budgets. This is one early warning system that will alert you to the need to change your plan early enough to be able to do something meaningful, before it is too late. Keeping your account collections from going past due is one of the most cost effective things you can do.

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Business plans start with a profit objective
August 14, 2009

In your business there are a number of assumptions you have to make that will determine the likelihood of successfully reaching your profit objective. These will be different in each industry and possibly in different locations, but certainly during different economic periods. Go back to those assumptions on a regular basis to see if they still track well. If not, you need to adjust. Given what you know, or think you know about what might affect profitability set your profit objective that is most important to you whether it is net or pretax profit goal amount, share price or per share earning.

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Employee Motivation as part of a business plan
August 12, 2009

Without proper motivation you may find your employees working against you, not for you. Maybe not in the literal sense, but if they are working on the wrong things they are not moving the business plan forward.

Managers at some level need to understand how each individual employee contributes to the company goals so that the employee can in turn understand how they fit into the plan. There has to be a shared understanding of the employees’ worth to the organization and what return is brought through their work. Meaningful rewards come out of that understanding.

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Effective Organization in a Business Plan
August 11, 2009

Part of an effective business plan is to have the right people in the right place who have the ability to support the plan. Your management style should reflect an expectation that everyone will perform as needed. You might ask a trusted colleague or consultant to asses for you your management style. Putting together the organization you need to fulfill your objectives does not mean that you stop business while you work on it. Keep going, but keep building.

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Attracting Investors
August 10, 2009

When times are tough, you can beg, borrow or steal the money you need to run your business. If you want to attract investors however you will need to show the profitability; projected growth in earnings; sufficient cash flow to stay solvent; ability to pay dividends; projected dividend growth; future increase in the value of your company; low tax basis and finally that all things considered, your company is well run and well placed in the marketplace.

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When sales go up
August 08, 2009
As you project sales to go up you need to plan for profitability. Profit is what you have after deducting expenses. But it is not as easy at that. Consider the effect the variable cost of sales might have on fixed costs. What? Yes, as sales go up your sales commissions, salaries and production go up at pretty much the same rate, but at some point you are going to have to add facilities to house more employees. This could burden you with more overhead and fixed expenses than you need if the up-turn in sales is not maintained.

One way is to calculate the fixed as well as the variable costs necessary to reach any given sales goals. A 10% increase in sales could be quite profitable while a 20% increase may actually may be no more and possible less profitable. You may find for instance that it is better to wait for a 25 to 30% increase before you try to go over 20%. Do the math first.

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Setting credit limits
August 06, 2009

There are many variables to consider in establishing a line of credit for your customers. A good starting place is to look at their current assets less current liabilities, plus after tax earnings projected for the period. Monitoring these account figures will help in adjusting the line of credit over time.

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Your invoices
August 05, 2009

Beyond just telling your customers how much they owe, it should be a reminder why they owe that amount. Making the invoice attractive keeps a positive image of your company in your customer’s mind. Your invoices should motivate prompt payment not just demand it. Make it easy for them to pay you. Encourage them to want to.

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Home prices seem to be leveling off
August 04, 2009

What might be good news is that home values in some areas of the country appear to be going up. Take a look at the website Zillow.com’s local information link to Real Estate Market Report. It will show you trends and statistics for home prices for most major cities and regions. If your area is recovering, it might be a sign of economic recovery, or at least a turn around in consumer confidence that could lead to more spending.

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Financial Audits
August 02, 2009
A CPA letter of opinion in an “audited financial” report is not a guarantee to creditors. It usually contains an opinion that the figures given them followed accounting principles that appear to have been applied consistently by management, no more. The notes however may include certain disclosures that may be important such as accounting changes, loss contingencies and lease and pension information. The audit is designed to provide reasonable assurance of detecting errors and irregularities that are material to the financial statements. Use it as one tool when considering extending credit.

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Objectives in a solid Business Plan
August 01, 2009

First, your objectives must be measurable. Department and individual objectives must support the company objectives. Avoid unreasonable objectives. Think about incremental objectives that lead to obtaining major objectives. Celebrate milestones along the way. Always remember it is people who work toward these objectives. Consider what they need to accomplish their goals whether pay, incentives, tools, processes or just a well timed “Atta boy.”

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Adjustment Credits
July 31, 2009

When your company issues a credit to an account to make up for an error or damaged goods, you are giving back money, so treat the process like you would refund checks. Make sure that more than one person is needed to authorize an adjustment credit, and from different departments. Consistently document adjustment credits.

Finally, do a periodic audit of credits that have been issued especially those where a higher percentage are coming from one account, address or individual.

If you use credit adjustment forms, keep them locked up and treat them like blank checks.

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The Magic of Cash
July 29, 2009

Cash gives you the working capital to support the profitable operations of your business.

Collecting cash and conserving that cash lets you take advantage of opportunities that come along such as bargain or discounted inventory, plus cash helps you weather periods of economic downturn.

Putting excess cash to work can be a source of income provided that you control the risks.

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Monitoring Credit Accounts
July 28, 2009

There are three tools you can use to monitor your credit accounts.

First is aging schedules – the usual current/30/60/90 accounts lists. These should be sorted for you by categories that make the most sense for you such as alphabetical, balance size, geographically, product lines or by sales territory.

Second, track how many days it takes your credit customers to pay your invoices. A slower trend may signal credit risk; a trend toward quicker payment may call for increased credit lines.

Third, how much of a customer’s credit line is available against what percentage is used? Again this can have positive consequences on sales as well as negative consequences on risk.

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Invest in Quality Collectors
July 27, 2009

Suppose that the difference in pay for attracting an entry collection representative and a skilled one is $3,000 a year. If your average sale is $1,000 and the better employee is able to save one extra credit sale each month, that additional $12,000 represents a 400% return in investment to you.

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Opportunities in Bankruptcy
May 07, 2009

Looking for new clients who might not have bought from you before? Look into companies which recently filed Chapter 11 Bankruptcy Reorganization. Sound nuts? Let me explain the logic and the caveats.

A Chapter 11 Bankruptcy is a financial reorganization of an ongoing business. It allows a troubled company to NOT pay certain bills, either wholly or in part. This means that other companies which supplied them goods and services on credit are not being paid, and have likely cut them off from further purchases. By offering to sell to a company in a Chapter 11 Bankruptcy you may get business you may not otherwise have gotten.

The downside is that far too many companies going into a reorganization bankruptcy eventually fail, leaving more unpaid bills. If you look at the balance sheet and cash flow projections of a company in bankruptcy you may find that you can extend limited credit to cover new sales at a reasonable level of risk. You need to especially keep on top of credit limits and terms to protect your exposure.

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Is credit starting to loosen up?
April 09, 2009


$7.5 billion in bailouts to GM & Chrysler have allowed them to ease lending standards and things are looking somewhat better but consumer confidence is still low. Real job losses and fears of job losses are still keeping buyers out of showrooms. Just when you see real estate sales improve in one place, prices in New York fall.

What does it all mean?

For now, consumers are hanging to cash, retailers are sitting on product and factories are laying off.

It is still going to be a bumpy ride.

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Too much credit?
February 02, 2009

One of the potential dangers of extending credit is not knowing how much can be allowed as outstanding at any given time. In any organization there is only so much cash flow or credit that can be dedicated to funding accounts receivable. There is also the matter of the cost of those funds which might exceed the rate of return from the extension of credit.

The greater your exposure to high-risk credit accounts the higher the risk of cash flow problems.

The less your ability to forecast credit risk, the higher the possibility that your company will find itself overextended before anything can be done to correct the situation.

You need to know your company’s “credit limit” and to quickly follow up on credit accounts that have stopped responding by getting them into a program of more vigorous collection activity.

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Tis the Season
December 18, 2008

While you are busy sending out friendly reminders for your slow-paying customers to pay you, don’t forget about keeping in contact with your good-paying customers.

Isn’t it important for you to get paid on time and don’t you value your best customers? Why not let them know you appreciate the way they do business with you?

So that they won’t later be tempted to take advantage of your graciousness, remind them that you report their prompt pay information to the credit reporting bureaus and not just the slow payment records of others. Also offer to let them use you as a credit reference when they apply for new lines of trade credit.

It may seem like asking for unnecessary work, but when things get tough and tougher, you will be glad your best credit accounts keep you at the top of their pay list. Even if things go wrong for them later, perhaps your appreciation now will get your phone call returned.

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How a good credit application can help you collect
November 24, 2008

Remember way back when you first approved credit for that commercial account, the one that is now past due and not paying you? The credit application that you used to help make that decision can now play an important role in collecting what is owed.

Even though it is a business credit account, you should have the principal’s home address and telephone number. Even if they have moved and the phone is disconnected, one or more of the neighbors might still be in contact and share with you where they went. There are any number of online directories what will let you look up who is at a neighboring address.

Also, you should also have at least three business trade references you can now call to see if they know the status of the business and where they might be. They might be in the same collection mode you are in and may be willing to cooperate with you.

Your credit application might also have information about relatives, banks and personal references which might give you a lead in tracking down you debtor.

All of this good information, so valuable when extending credit would not be available for collections if you did not keep the credit application in a safe, accessible location. Now, go get ‘um!

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Is it time to consider getting outside collection help?
October 08, 2008

Getting outside help with collections gives your company the benefits of improved cash flow, lower DSO, higher profits, reduced bad debt, lower receivables management costs, and better customer communication. Getting professional outside help with collections provides your company with trained collection professionals who are specialists in collecting your money while preserving customer relations; all at a significantly reduced cost to your company. You can receive these benefits while still maintaining control over one of your company’s most important assets; it’s customer base. Maintaining the customer base is the most important functions of the credit department. If getting outside help with collections helps you improve communication with customers, it is an option worth considering. Getting outside help with collections for a portion of your receivables portfolio may make sense for your company, but not if you do not find a compatible outsourcing partner. You must be comfortable with your partner. After all, they will be working with your company’s most important assets: your customer base.

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Avoid Bankruptcy Preference Actions
September 04, 2008
The Rules of Acquisition, in the fictional Star Trek universe, is a set of guidelines intended to ensure the profitability of businesses owned by the ultra-capitalist Ferengi.

The first Rule of Acquisition is "Once you have their money, you never give it back."

Think about the satisfaction of finally getting that unsecured, past due debt paid by your slowest paying customer. You would like nothing better than to hold on to that money, but months or years later, WHAM you get an official notice from some Bankruptcy trustee to return that money! Now what?

If your past due debt got paid within 90 days prior to your debtor filing bankruptcy, the law presupposes that you were paid in preference over all other creditors, as if you were privy to some insider dealing. The equity solution is for all of the preference payments to be pulled back into the estate and redistributed. There is seldom any redistribution of any such recovered money to unsecured creditors.

What to do? Your safest bet is to be sure that you always get paid in full and on time, especially by your most credit-risk customers. If you can prove that the payment was not on a past due balance… “you never give it back.”

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More than a loan
September 04, 2008

Are you playing banker for your customers? If you are extending credit to them, that is, if you giving them goods and services in exchange for promises to be paid at a future date – you are playing banker.

This is not a bad situation so long as you calculate the costs of providing those goods and services into your sales cost. You are a good business partner after all and you pay YOUR bills on time, yes? That means you have to pay someone whether you get paid or not.

What if it takes longer for you to get paid than expected? You could wind up having to borrow the money to pay your employees and suppliers; you could lose the interest on the money that you could have otherwise make by investing it; you could lose out on the ability to get discounts for cash or prompt payment on what you buy. Worst of all, the longer it takes you to get paid, the more likely you will never get paid. Bankruptcies don’t happen over night, but you don’t want to be stuck holding an empty sack if your debtors file.

If you keep a tight reign on your accounts receivable and take prompt collection action whenever payments get slow you will usually come out ahead. Pick up the phone; send a collection letter; anything, but don’t just sit by and watch you money lose value.

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Disputes and Discrepancies
August 15, 2008

Are billing disputes and discrepancies building up in your past due column? Are you spending more time collecting small amounts from good customers than you are collecting large balances from troubled customers?

Break out of that Pit of Despair and do something meaningful to avoid them in the first place.

The sad fact is that the source of most disputes and discrepancies start within your own company. As Pogo once said, “We have met the enemy, and the enemy is us.” Errors creep in when you have overly complicated discount sales programs and overly convoluted internal communications between sales, manufacturing, shipping and billing.

The biggest problem for you the Credit Manager is that the solutions usually lie in other departments for which you have no authority to make changes. As Jerry Garcia once said, “Somebody has to do something, and it’s just incredibly pathetic that it has to be us.”

You need to streamline your products and processes to improve quality of not only products and services, but also the quality of the information going on the bill you send out.

One good way to start this process is by enlisting the enthusiasm of all the other managers whose employees touch the customer to work together to make it easier for each other to “get it right the first time.” Everyone understands the need to reduce waste on the shop floor, but few instinctively understand the need to reduce wasted time; yours and your customers.

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The Tao of Debt Collection
August 15, 2008

Be self-assured when you ask for payment. They owe you a debt, not a favor.

Call early and call often. If you don’t seem to care about getting paid, neither will your debtor.

You can be aggressive without being abusive. You can push without getting angry.

Don’t get caught up in a cycle of arguing with your debtor. Let them vent, but get them back on the subject of payment.

Promises are good. Either they pay as agreed, or you know to be more aggressive. How they act on promises tells you much about how to proceed.

Finding out why you are not getting paid requires good listening skills. Listening gets to problem solving.

Work through objections quickly. Deal with legitimate reasons, brush off excuses.

Know when your customer becomes a debtor. You want to keep customers if you can.

Time is not on your side. The longer you put of doing something meaningful to collect your debt, the more likely you will never collect it.

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Credit Fraud
August 08, 2008

Your best chances of getting paid on past due accounts start when you avoid credit fraud in the first place. While credit fraud is relatively rare, half of all business credit frauds give fake references. Check the references in local directories to see if they have a legitimate location and not just a mail drop. If you call a reference and have to leave a message, when you get a call back ask to call them right back and see if you get an answering service again. Look for patterns of references that don’t match the new clients’ story. Are references reporting sales too high or a credit relationship too long for the company you are checking on? Whenever your “gut” tells you that something doesn’t quite add up, dig deeper. If it is a particularly big order on a new sale, don’t hesitate to check the credit of suspicious references. The extra effort will help you avoid losses that no amount of collection effort will help.

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Two questions to ask your self when extending credit:
July 25, 2008

1. What is the likelihood something could go wrong?

The less you know about the Character of the people you are dealing with; the Capacity of the company to operate successfully; their financial Capital; the current economic Conditions and the validity of the Contract, the more likely something could go wrong.

2. What is the worst thing that could happen if something does go wrong?

The bigger the possible impact to you, the more you need to determine the likelihood of something going wrong.

Know and understand the C’s of credit.

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The C's of Credit
June 22, 2008

Q: What is this I hear about the C’s of credit?

A: There are several lists out there that use words beginning with the letter C as a memory device of things to Consider before extending Credit.

Character refers to the willingness of someone to pay you. Look to their previous business background. Find out all you can about the owners or officers of the company. How have they performed in the past? Any bankruptcies? Are they new in town? Do they move around often? What you want to watch out for is fraud.

Capacity is the ability to operate successfully. Look at the skills the people bring to the business. Do they have the marketing, production and finance experience to run the business? Previous business experience is a valid indicator of the capacity of the firm. What you want to watch out for is incompetence.

Capital is necessary for the ability to pay obligations. This is all about financial condition. Review especially their net worth and cash flow. Watch for under-funded or unprofitable firms.

Conditions (of the times) will affect their ability to pay you. Consider general economic conditions that are occurring nationally, regionally or within the industry. Also consider weather and seasonal conditions. Watch out for poor contingency planning.

Contract is an agreement that they will pay you according to terms. Be sure you have necessary written agreements; credit applications; saved correspondence; you’ve properly identified the identity of the debtor as either an individual, partnership, corporation or LLC. Watch out for surprises and possible future misunderstandings.

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3 Step Telephone Collection Process
May 11, 2008

Whole books have been written about the psychology behind the steps you should take in collecting money over the phone. If you simply follow the easy steps below, you will be way ahead of the game.

1. Before you get on the phone, know the current status of the account. Make sure you have reviewed the past record of the account. Be aware of any economic conditions that might affect payment. Plan your strategy before the call.

2. When you make the call, identify who you are talking to then identify yourself and the reason for the call. This is a good point at which to pause. Let them reply first if you can. Discuss the account and come to an agreement.

3. Record the conversation and send a confirming letter if the balance justifies it. Call back on the day payment is due if no payment has been received.

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Can they, will they pay the bill?
March 03, 2008
Before making the decision to extend credit to another business you have first determined the legal ownership of that business and have documented that they agree to the terms of the credit sale. Now the final step is to determine if they have both the capacity and the willingness to pay their bills.

Financial statements; balance sheets and profit & loss statements are a good place to start. While the numbers can be manipulated to look better than they are, ask your self “do they make sense?” For the size and age of the business, do the numbers look about right for the industry? Will you be the biggest creditor? Do they have sufficient current assets to cover liabilities as they fall due? Are they profitable and have a solid tangible net worth? Their bank will sometimes verify deposits and length of service.

If the financials look good, check to see if they have a track record of paying their bills on time. It does you little good if they can pay you, but put you off until you file suit. You can check the business reference they give you but a less slanted method is to order a credit report from an NACM affiliate such as PSCredit.com who will not only check references but have a database of reports from other suppliers and public record information.

The better job you do at qualifying business credit customers at the front end, the less you will need to resort to collection services or collection attorneys at the back end to convert your sales into cash.

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Question From Blog Reader
January 07, 2008
P. Eliot of Tampa writes: “Postcards seem to be a quick and inexpensive way to collect money. Why aren’t these used more often?”

Answer: If you are using postcards to collect consumer debts, STOP IMMEDIATELY! Not only can the postal workers read about the debt, anyone at the address, related or not, could see this information. Collection laws strictly prohibit most “communications” of consumer debts to a third party. As collection laws evolve, many of the protections for consumers are finding their way into collection of commercial/business debts. While you may be able to get away with it for a while longer, the safest practice is to seal collection letters inside envelopes addressed only to the debtor.

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December 20, 2007
Your sales person may be the only one from your company to have face to face contact with your potential customer before you decide to extend credit. Train them to ask a few simple questions that will not only help you in the credit phase of the transaction, but will also help you greatly if/when you have a problem collecting an unpaid bill.

*What is the name of the owner of the business?

*Does he/she have a partner, and if so what are the names?

*Is the business incorporated or an LLC, if so what is the exact legal name of that entity?

The name printed on the side of the building is seldom that of the legal owner of the business. Small business “owners” will often mistakenly say that they own the business when in fact they have incorporated the business, and the corporate entity is really the legal owner. If you ever have to file suit to collect this distinction will be important. You will not be able to collect from an individual if it turns out that the business was a corporation all along.
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Debtor vs Creditor
November 29, 2007
Do you know the difference between the two? These two basic words are sometimes confused by business people who extend credit. So if you currently make this mistake, you are not alone. Here is the clarification:

Creditor: the entity that is owed the money. The party that has provided credit in the form of goods, services or a loan and is owed money.

Debtor: the entity who owes money to another party, the creditor.

These two phrases should never be interchanged if your customer owes you money based on credit you extended to them. So now that you know the difference between creditor and debtor, apply it to your everyday business lingo.

eCollectionLetters service can provide you with a collection letter service to help reduce debt accounts by eliminating the third party intermediary costs of a collection agency. We understand when the customer doesn’t pay your business may suffer. Past due accounts may limit your ability to expand, purchase new equipment and/or supplies, or negatively affect your cash flow. Past due accounts reduce profitability. Save time. Save money. Save effort. With eCollectionLetters, we will help you save all three! Click here to sign up today.
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Good Collections Start with Good Credit
November 14, 2007
Debt collection, whether you use collection letters or a collection agency service, your success in getting paid may depend on how good of a job you did before you extended credit. The three questions you have to ask before you extend credit are:

1. Who’s on the hook?

2. Do they agree to be on the hook?

3. Can they, will they pay the bill?

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Free Sample Collection Letter vs Collection Agency Letter
November 07, 2007
You no doubt have tried sending your own collection letters and maybe even some free collection letters found online. Sometimes it’s not how you ask that is as important as who does the asking. A collection letter from the Credit Manager or Company Owner will get more attention than from your company clerk. Similarly, a letter from a collection agency will seem more important than any letter you might send.

eCollectionLetters will get noticed because they are sent out by our collection agency Pacific Southwest Credit Association with national affiliations. We tell your debtors that information about unpaid collection accounts such as theirs is routinely shared with credit reporting agencies. Reports of bad credit history make getting new credit harder, which makes doing business harder. Finally, we tell your debtors that our collection agency is prepared to take whatever legal means necessary to collect any unpaid account balance.

With eCollectionLetters you only pay for what you need. The most it can cost you for a series of three collection letters from our collection agency is $15. Only then should you consider assigning the account balance to our full-service collection agency, and then you only pay a percentage of what is collected, and you don’t pay anything until it is.

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