What are the chances to collect a debt
Every second client asks us “what are the chances to collect my debt?”. That is not easy to answer.
If the case were about mass collection of B2C debts, it is possible to asses such chances based on stats received from processing of previous or similar portfolios and number of data.
But what to do with single B2B debts?
Despite it is impossible to calculate it precisely due to lack of data for calculations, there is some way how to at least assess chances roughly.
We usually assess them according to 4 grades: extremely low, low, average, high chances.
Extremely low chances
The chances are almost non-existent if the company is liquidated, either voluntarily or in insolvency proceedings. Legally, there is no entity to collect from. Many creditors just give up in such situations. The chances are one to hundreds, but in our practice there were cases when former principals paid debts of liquidated companies because of reasons of personal reputation, intention to make business with creditor from other entity and even personal word of honor. But it is still exception. Most of collection companies do not take such debts for collection simply because there is no legal reason to collect it.
The chances are extremely low also for so-called “shell companies”, i.e. companies that exist only de jure, without any physical presence and assets. Sometimes such companies are made initially mostly for criminal purposes, e.g. for fraud; sometimes real companies in hard times disappear with assets leaving only its empty “shell”.
Anyway, “no win-no fee” policy of the most collection companies always make it worth to try collection for creditor.
The chances are low for the debts over 3 years. In the most countries 3 years are general statute of limitations, i.e. it is too late to go in court after expiration of such term. Whether debtor makes no payments during 3 years and aware of statute of limitation, not many reasons left to pay the debt for him.
That is to say nothing debt is in totally forgotten after 3 years, so reminder even made from collection company does not usually bring debtor any enthusiasm to pay.
The smaller debt is and the bigger debtor’s company is, the better chances to collect are, but still be prepared to write off such debts.
Low chances also apply to insolvency proceedings, when debtor goes into proceedings but is not bankrupt yet. Chances are obviously low there; it is also necessary to remember, in many countries, there are time limits for creditors to file a claim in such proceedings. Missing of the term send debt to category of debt with extremely low chances to collect.
The chances are medium for debts of 1-3 years old. Medium chances applies to variety of debts, but generally the smaller debt is, the better chances are to collect it.
Chances also depend on debtor’s financial situation – mostly on his accounts payable, so it is worth to check how much debtor owns to other creditors. The more debts he has, the less chances to collect are.
Court records is also good indicator – chances to collect are better if no one from other creditors went legal. It usually means debtor puts efforts to sort out his financial problems.
History of communication is also important: debtors that were keeping constant contact with creditor are more likely to pay, than the ones who disappeared or ignored contacts.
Debt before 1 year usually has the best and high chances to be collected. The main problems with those debts are…creditors, who miss the best chances to collect and let the debt slipping to worse categories. Unfortunately, collection companies often see receivables that has low chances to be collected just because they were not timely attended, served or given for processing to collection companies.
Summarizing things, there are always at least SOME chance to collect. There is no sure way to calculate the chance, but “no win -no fee” policy of the most collection companies gives 100% guarantee no fees would be incurred unless debt is collected. Why not to try?