The Ethics of Collections

I've spent some time as a collections officer myself, and I know that of all of the parts of a company's General Administration functions, it's always going to be collections that are the farthest into the grey area. But with the onset of our current recession and the general decay of civility in these United States I'm starting to worry about both the way this formerly honorable profession is being practiced, and the rather silly ways the general public seems to think about it. When the story surfaced in January about a cancer patient whose insurance company dropped him because a clerical error shorted one of his monthly payments by 2 cents (they say he had three months to make it up and refused; he says they never mentioned the shortage) I realized that it's time we all took a closer look at the subject...

If you've ever received a collections letter - and in particular, if you've ever become aware of a debt because of a collections letter with no previous notice received - you already know that we've entered an era of particularly ugly business dealings. Any shortage will do, and in many cases we've seen a tendency to trash people's credit and ask questions later. This is particularly upsetting in the case where there isn't any insurance or other third-party relationship involved; the company has simply decided to lower the boom on a customer without regard for future business they might receive from that customer or the damage to their public image as a result of hurting that customer. As a business analyst and a management scholar I must confess that such practices offend me in a professional sense; it's a small-minded, bureaucratic, rules-are-more-important-than-thinking act of nonsense that damages the company, destroys jobs as well as lives, and takes value away from the stockholders (who, let us remember, actually own the company). If I were the CEO I would fire anyone responsible for such practices - and, in fact, it would be my job to do so as the agent of the stockholders (as noted above). But, unfortunately, the issue isn't that simple...

In any business that isn't strictly cash-and-carry (which is most of them, these days) there are going to be some people who will use your billing cycle as an unofficial loan provider, intentionally delaying payment until the last moment. If you don't charge interest on accounts receivable (and most businesses don't) there is no real penalty for delaying payment to 90 days (or whatever your cutoff is for sending people to collections), and every day they don't give you the funds is one day they can earn interest on those funds for themselves. Unfortunately, those accounts don't look any different from any other account, and neither do the people connected with them; there's no way to know who is a scam artist you should go after with a vengeance and who is an innocent customer having a clerical error whom you should cut a break - and even if there was, doing do would be asinine from a legal standpoint. The only way to prosecute any such case successfully is to treat every one of them the same way - and that means coming down hard on people who missed 2 cents because of a clerical error...

So how should an intelligent company handle these issues? Individual review of every case by thoughtful and caring case managers is impossible when we start talking about thousands or millions of cases, unless we want to dramatically raise our prices and lose all of our customers (thus destroying our stockholders' equity), but damaging people over a 2-cent oversight makes us look like idiots, gets public opinion against us, and loses customers (thus also destroying stockholder equity). By the same token, risking someone's life or health or even peace of mind over pocket change isn't ethically correct - but neither is bankrupting the people who have invested their money in our company because we don't do our stated duty and insist on payment for products or services we've provided. So how do we split that difference; how do we manage to be tough but fair when we know for a certainty that our clientele includes honest people who make honest mistakes, scam artists who are more than willing to destroy us for their own purposes, and the occasional person who has just made a potentially lethal clerical error because they were distracted by life-threatening illness and/or the resultant crushing depression?

It's worth thinking about...