When a Commercial Debtor Refuses to Communicate
Ghosting, or putting a creditor on permanent ignore, is fairly common in consumer debt collection. While this has remained constant in consumer collections, we have noticed a substantial increase of commercial debtors (especially limited companies) who have chosen to cut off communications with their unsecured creditors. All of a sudden you can't get the person responsible for paying your receivable on the phone. Messages are never returned and the debtor company has stuck their head in the sand, hoping you will give up and just go away.
When a debtor company chooses to ignore, or avoid communicating on your overdue account, it is usually a good indicator that their company is in a death spiral. The reasons behind a limited company going out of business are endless. However, when they refuse to communicate with you, you have no idea what is going on and if you will ever get paid.
There are usually two types of financial scenarios behind a commercial company's decision to cut the lines of communication with their unsecured creditors:
- Their company is so screwed up that they have no idea how they are going to pay your account. Once a company is in this situation their main priority is trying to placate their secured creditors, as the consequences for non-payment can be immediate. They now have the attitude that unsecured creditors can wait.
- Most business owners are well aware when it is
only a matter of time before they are out of business. Personal survival kicks in and their main
concern is liquidating the company assets, and-or selling their company. Their goal is to eliminate any personal liability
hangover when their company ceases operations.This is why secured creditors and creditors with personal guarantees
have better odds of getting paid before a company goes out of business.
Strategies for a non-responsive Commercial Debtor
There are two basic strategies for non-responsive debtors depending on the amount owed. On larger balance accounts it pays to do a little research to get a better idea why the debtor is avoiding you. A credit bureau (providing you have a credit waiver), PPSA search and other low cost searches can reveal a debtor's true financial picture. It is also worthwhile to make a few calls to other suppliers the debtor uses and see if they are experiencing the same difficulties with getting paid.
With a little research it usually becomes obvious if you need to immediately ramp up collection efforts to get paid. When a company is going down, it is the first creditors who press for payment that will get paid. Issuing a final demand for payment lets the debtor know your patience has run out. If the company persists in ignoring you, then the account should be immediately placed for collection.
The best strategy for small balance accounts is to immediately issue a final demand for payment with a drop dead deadline. If you don't follow through with your ultimatum, the debtor will never take you seriously.
It is better to get X% of something than 100% of nothing
Unfortunately, many companies are hesitant to list an account with a collection agency because they don't want to pay any commissions. They continue to let the debtors play the stall game and when it is far too late, they list the account for collection. By that time the debtor company has been picked clean and the remaining creditors end up with a 100% write off. A cardinal rule in accounts receivable is it is better to get X% of something than 100% of nothing.
