When it comes to delinquent accounts, there is no way to collect 100% of every account balance. But there are a number of things cooperatives can do to guarantee that they are collecting the maximum amount possible.
Uncollectible accounts have been an increasing problem for cooperatives across the country. NRECA statistics, for instance, show that over a recent ten-year period (1996-2005), the average amount written off per co-op grew from $49,000 to $91,000. One member services employee quoted in an article in the June, 2007 issue of the Rural Electric Magazine reported that the bad-debt write-offs at his co-op had doubled over the past several years. And the administrative cost of collections (inside employee expense and outside collection expense) has also grown.
With the increasing costs to cooperatives of delinquent accounts, it is critical to look at how those costs can be minimized. There are a number of things cooperatives can do to guarantee effective collection efforts.
Discussion about reducing delinquency usually focuses on what can be done after an account goes delinquent. But more attention should be given to good practice on the front end - at the time an account is set up. One of the first things that can be done is to get good credit information about the new customer, such as how long they lived at their current residence, where they lived before, where they work, where they bank, etc. In taking the initial customer information, cooperative employees should view the information as a credit application.
Another approach to consider is to ask about possible joint members, who would be jointly liable for account charges. (See Bill Thedinga's recent article titled "The More the Merrier" which discusses the advantages of joint memberships.) The best practice may be to automatically ask about adding a spouse or other person living in the same household as a joint member.
With business accounts, it is important to get a personal guarantee from the business owner. Many businesses operate as a separate entity, such as a corporation or limited liability company (LLC). The owner of the business is insulated from personal liability unless she signs a personal guarantee. Based on a straw poll at a recent national cooperative legal seminar, only a minority of cooperatives use personal guarantees for business accounts. In our view, they should always be used when an account is established in the the name of a corporation, limited liability company (LLC), or limited liability partnership (LLP).
On the back end, after an account is delinquent, what's crucial to successful collection is prompt follow-up and firm follow-through. In our experience, the longer and account remains delinquent, the harder it is to collect. Early follow-up generates better collection results. And personal contact beats form-letter follow-up every time.
Disconnecting customers, and the rules and restrictions that go with it, are the subject for specific advice from a cooperative's legal counsel. But again, it's important to pursue disconnection as soon as possible. There's no better way to communicate the consequences of delinquency than to implement a prompt and firm disconnect policy.
Even though collection of delinquent accounts is an increasing concern for cooperatives, there are prove techniques for reducing collection losses and costs. Cooperatives should consider how they can improve collection from both the front-end, when and account is set up, and from the back-end, when and account becomes delinquent.
This article is intended for general informational purposes only, and should not be construed as legal advice. Always contact your legal counsel for advice or answers to your questions.
