By Dean Kaplan+
Collection agencies and credit professionals are constantly faced with legal and ethical issues when performing their functions. When credit is extended to a customer, it is paramount that the credit professional uphold the law and be ethical when making credit decisions. When collection agencies or credit departments attempt to collect delinquent debt from customers, all laws must be followed, and the debt collection process handled in an ethical way. This article will discuss the ethics of debt collection and the credit function.
What is the difference between legal and ethical? Laws are created to establish the lowest level that is considered legal on a particular issue. In other words, if a person oversteps the legal threshold, even a tiny bit, the person is breaking the law. If we look at driving under the influence of alcohol as an example, the legal threshold is .08. If a person blows a .08 or higher on the breathalyzer, then he or she is legally intoxicated and has broken the law. Anyone who blows a .079 or lower has not broken the law. Is a person ethical simply because he or she follows the letter of the law? No, because a person can be dishonest, a liar or unfair, and still follow the law. The ethical person chooses to be ethical, as well as uphold the law.
The laws relating to business to business credit differ significantly from those relating to consumer credit. Sometimes, businesses will attempt to hide behind the cloak of laws that pertain only to individuals. When this happens, it is important that the credit department or the collection agency be fully informed of what laws are relevant in the business to business situation. Knowing the laws in this way helps the debt collector defuse the debtor’s attempt to stonewall the debt collection or payment negotiations.
Ethics come into play in several ways during the credit process. Clearly, when extending credit, fairness and consistency are important. If the company has a standard credit policy, this takes the guesswork out of the process. The same standards apply to every customer, and a formula is used to determine the credit limit. The credit policy assures the ethical treatment of all customers during the credit evaluation process.
Once the relationship with a customer becomes ongoing, another area where ethics can come into play is when accounts receivable go delinquent. When this happens, continuing to extend credit comes into question, and the task of debt collection begins. Both of these areas can bring ethics into question. When making decisions to extend further credit, despite outstanding debt, the most ethical way to handle it is through the standards set in the credit policy. The question of how to move forward is answered within the standards set in the credit policy. In the case of debt collections, of course, the debt collector will be fully knowledgeable of the laws relating to the debt. In addition, the way that the debt collector handles the collection process must be ethical. In truth, when the debt collection process follows the ethical path of fairness, compassion, and honesty, the likelihood of successfully collecting goes up. Interesting that when people feel they are being treated fairly and ethically, they are more willing to negotiate and do the right thing themselves.
The bottom line is that collection agencies and credit professionals must follow the letter of the law in credit and collection practices. They must also follow the company’s directions on ethical behavior in their day to day functions. If laws and ethics are followed consistently, the functions of collection agencies and credit professionals will be most successful. Success in the extension of credit and the collection of delinquent accounts receivable will lead to improvements in profitability, a goal of every business.
The Kaplan Group is a boutique collection agency specializing in large (over $10,000) debt collections due from businesses. Founded in 1991, the company has a stellar reputation (A+ rating with the Better Business Bureau) and is recognized as one of the leading collection agencies for results on large and complex matters.