Outside the box
Recently, Financial Examinations and Evaluations (FE&E), which does a lot of collections work, got a call from a chain of bookstores wanting help in collecting on a lot of money owed by people who bought books on credit, but hadn’t paid. This is not an uncommon problem. The unsophisticated turn this over to a collection agency. The more sophisticated pick up the phone and call the people who owe the money.
We know of a man – a multi-millionaire, who owned, among factories and other ventures, a store in a dodgy part of town, whose customers periodically bounced checks. He would come in once a month and call these people, and explain that they had, doubtless inadvertently, bounced a check, and ask how they would like to take care of this. Virtually all either replaced the check, brought in cash, or made payment arrangements He was rarely stiffed.
Armed with the knowledge that most people do not deliberately write bad checks, FE&E suggested hiring a college student to call all the debtors and offer to give them a ten percent discount coupon on a future purchase if they would come in and cover their debt. They took the advice, and for the cost of having a kid make phone calls, recouped most of what they had thought of as a loss, plus assuring future revenues on the coupon sales. Often in recovery it is not about making the debtor wrong, it is about allowing them to save face and make good on their obligation. From experience, they are an order of magnitude more likely to pay someone who is trying to help as opposed to someone who is calling in the middle of the night to threaten them.
High risk credit ventures, such as sub-prime loans, or selling used cars to the credit-challenged, can be very profitable if appropriately managed. The risk is directly proportional to the distance, measured in managerial terms, between the investment and the responsible manager. That is if a responsible manager can be found.