Collections Insider

A clothing company’s radio commercial touts “An educated consumer is our best customer.” Unfortunately, too many consumers fail to educate themselves before signing contracts for everything from health club memberships to real estate purchases. Once a contract is signed, there is little that can be done to get out of the contract unless the other party fails to live up to the agreement.

A common misconception among consumers is that “I can change my mind and get my money back” even after a contract is signed. In some limited circumstances, state or federal laws may provide a “cooling off” period, usually three days, in which a consumer may change his or her mind for any reason and cancel the contract without consequences. In Pennsylvania, such a “cooling off” period applies with door-to-door sales. New Jersey provides a three-day attorney review period for real estate sales. Federal law requires a three-day cancellation period for any loan or financing agreement. Apart from these limited circumstances, however, a consumer is obligated to complete the transaction once he or she has signed on the bottom line.

Many contracts for consumer goods are multi-page forms with paragraphs of fine print. You may not be able to change the language anyway, but you owe it to yourself to understand your rights and obligations. Here are some suggestions to avoid buyer’s remorse:

1. For expensive purchases (e.g. automobiles, high end electronics and appliances, and certainly real estate), take the contract home and read it away from the pressure of the sales environment. It is unlikely the deal will be taken off the table in 48 to 72 hours. Give yourself the “cooling off” period before signing.
2. If the salesman agrees to change the terms (e.g. upgrades, credits), get it in writing in the contract. Standard contract forms contain a clause that states nothing promised outside the contract, written or oral, is included. If you take his word for it, you may be out of luck.
3. Understand at least the warranty terms and what happens if the product or service does not meet your expectations. Ask the salesman under what circumstances you can return the product or cancel the service and get your money back.
4. Certainly, a significant purchase may justify attorney review. Ask yourself is it worth a couple hundred dollars to get advice on a deal involving several thousand dollars of your money?
5. Keep all contracts and warranty documents in a file at home for at least two years from the date of purchase. If something goes wrong, your attorney will have something to work with.

About the Author: Scott I. Fegley, P.C. is a veteran of numerous arbitrations, several trials, and appellate arguments before both state and federal courts. Mr. Fegley is admitted to the Bar in Pennsylvania and New Jersey. In the federal courts, he is admitted to practice in the District of New Jersey, the Eastern District of Pennsylvania, the United States Court of Appeals for the Third Circuit and the United States Supreme Court. Mr. Fegley is also an adjunct instructor of Labor and Employment Law at the Bucks County Community College. Visit his website for more tips and information at www.fegleylaw.com.

Collection agencies have long been integral to the success of the small business owner. Small businesses face special challenges in recovering outstanding debt. Unlike large businesses such as hospitals and credit card companies, the average small business owner does not have the time or resources to devote to chasing bad debt, nor does he have the financial security to easily write-off bad debt as one of the costs of doing business. For these companies, recouping past due balances can be the difference between financial success and complete failure. A good collection agency can prevent the small business owner from facing bankruptcy, lay-offs and closure.

However, most small businesses are overlooked by collection agencies, when a relationship between the two would be mutually beneficial. According to a 2006 study conducted by The Association of Credit and Collection Professionals (ACA International), nearly 56% of all collection accounts placed in 2006 were hospital accounts and delinquent credit card debts. Only 10% of all accounts placed during that period were non-hospital healthcare accounts (doctors and dentists in private practice), only 1.2% of accounts placed were commercial, or business to business debts, and only 1.5% of all accounts were “other” types of retail accounts. In other words, in a world overpopulated with small businesses, these companies are not benefiting from a relationship with collection agencies.

Small business owners often shudder at the idea of spending money to collect the money that is already owed to them. What many small business owners do not understand is that after time, they are less likely to collect the full amount owed to them, no matter how much time and energy they are spending on any given account. The United States Department of Commerce estimates that businesses are most successful in recouping monies owed to them during the first 60 days after the debt is incurred. At ninety days, businesses can expect to collect up to 74 cents on the dollar. After six months the figure drops to 58 cents on the dollar, and after a year to 27 cents on the dollar. How much time and effort would you put into an account that would only yield you 27 cents on the dollar?

Corporate America and large collection agencies have been working together for quite some time. Credit card debt alone constituted nearly 24% of all new collection agency business last year (ACA, 2006). Small businesses seem to be ignored by hungry collection agencies, and those collection agencies that do manage to reach out to the small business owner are often turned down due to the misconceptions that it will cost the business owner too much money to hire an outside agency. Despite these misconceptions and the lack of collection tactics geared toward the small businesses, a relationship between the two would not only be mutually beneficial, but surprisingly profitable as well.

According to the ACA, the average recovery rate for commercial debts was 27.6% in 2006. The average recovery rates for non-hospital healthcare debts and for the catch-all “other” category of small businesses were 19.3% and 16.1% respectively. This amounts to average payments of $387.00 for commercial accounts, $111.00 for non-hospital healthcare accounts, and $189.00 for “other” small business accounts. An agency that deals solely with accounts of this type can assume it will do relatively well. Likewise, small business owners can spend their valuable time on more important tasks, and feel confident that collection efforts will be successful on their types of accounts.

In the next article, look for what small businesses should expect from their relationship with a collection agency.

About the Author: April Magnuson is the Collection Manager for NeF Capital, LLC. NeF Capital handles consumer collections in Maine, Vermont, New Hampshire, Connecticut and Rhode Island.