Collection agencies also struggling in the down economy

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Collection agencies that resolve business-to-business debts experienced a 30 percent to 40 percent surge in new business when the economy first tumbled between late 2007 and early 2009, according to local agency statistics. However, that didn't necessarily translate into an equivalent financial success.

Agencies including Biehl and Biehl in Carol Stream, Brennan and Clark in Villa Park and Credit Decisions International in Elk Grove Village all hired more staff to handle the extra work. Biehl and Biehl, for instance, had to ramp up for a 60 percent increase in sales during 2009.

But contrary to what you might expect, the influx of additional accounts was not a gold mine for the collectors because in many cases they were hired to contact failed businesses from which there was little chance of collecting, said Lou Figueroa, president of Credit Decisions International.

Other area collection agencies, whose fees depend upon the money they are able to recover, experienced the same trend.

“There was a huge influx of business, but little chance of recovering many assets,” said Brennan and Clark President Meg Scotty. “We were seeing an unprecedented number of bankruptcies and companies just dissolving, and since the economy had been so strong, only about 5 percent of business owners had been required to sign personal guarantees that we could pursue.”

In those early days, Scotty said, the company was busy with triage, sorting through the new placements to decide what was “dead on arrival” and what could possibly be saved.

“We spent lots of money on our company infrastructure to make sure that we could handle the accounts efficiently. Otherwise we wouldn't have been able to remain in business ourselves, since the amount of money being recovered, compared to the number of (new accounts), plummeted,” Scotty said.

“When a small business goes bust, it is usually just that. They don't have any tangible assets to go after because they have leased everything,” said Bill Biehl, president of Biehl and Biehl.

Consequently, Scotty admits she became very adept at delivering bad news to her clients, telling them that many debts would have to be written off. They couldn't even sue because no attorney would take the cases since there was nothing to be gained.

Debtors that were still in business, on the other hand, were put on more repayment plans than ever before, although Biehl said agencies tried to keep those plans to no more than 90 days since the longer the duration of the plan, the greater chance of default.

Figueroa found himself referring more placements — in which personal guarantees had been signed for payment of business services — to creditors' rights attorneys whose reach extends to 30 countries. Eventually such cases, if not settled, can result in sheriff's sales of assets.

“I have never been in this position before,” he said. “For many of our own clients, this has been like the Great Depression. Some of them even filed Chapter 11 bankruptcy themselves. If you drive down almost any block in the southeastern part of Elk Grove (Village), you will see vacancy after vacancy and this was such a thriving (business) area three years ago.”

Since early summer, placements have leveled off again, Scotty said. And Biehl expects 2010 sales figures to reflect a 20 percent drop in business from 2009.

“I believe that collection agencies were the last to be adversely affected by the Great Recession and will be the last to recover,” Scotty said. Others agree and expect more slow going in coming months.

“Our business follows our clients' business,” Biehl said. “Since our clients' sales have been impacted by the recession, now our sales are being impacted. If you are not selling anything, you don't have to worry much about collecting.”

However, more businesses are now requiring their customers to sign personal guarantees before extending them credit, so when or if problems arise in the future, they have a better opportunity to collect, Biehl said.

Some businesses are also holding their accounts receivable slightly longer or trying other means before sending them to collection agencies, hoping to avoid the fee, Figueroa said.

For example, Damiano Diesel Service in Des Plaines won a $20,000 court judgment last April against a client who ruined an expensive piece of equipment while leasing it, but refused to pay. So, owner Pete Damiano added a personal plea for payment to his firm's electronic sign, naming the debtor company.

While that debtor continues to dodge the judgment, Damiano's many other clients are paying their own bills much more quickly, saying that they don't want their names on the sign, too, Damiano chuckled.

“I have been in business for 28 years and in the past, I would have sent past due accounts to a collection agency. Now, I don't let companies get into me so deep because I don't want to have to chase anyone,” he said.

But he also knows that he has a powerful weapon in his electronic sign.