Hi Everyone,
It’s Hector, and as always, I greatly appreciate receiving your emails and having the opportunity to offer my thoughts on the many interesting credit and collection situations you encounter.
Recently, I received an email from a collector at a collection agency regarding a claim that, at first glance, appeared to be fairly routine. The creditor is a subsidiary of a Japanese-owned manufacturer of high-precision industrial drills and had placed a $15,000 account for collection. The debtor was an industrial products distributor that had continued making promises to pay, but the invoices stretched all the way back to May 2021. The creditor had finally stopped shipping product by November of 2025 and placed the terribly past due account for collection in May 2026. The creditor employed only two people, and the manager responsible for credit and collections had limited English skills and, by his own admission, found it difficult to be assertive with delinquent customers.
As the collector began investigating the account, he uncovered something that completely changed the picture. After the manufacturer stopped selling directly to the debtor, the debtor simply began purchasing the exact same products from three of the creditor’s other distributors. Unfortunately, those distributors also extended credit and experienced the same payment problems. Eventually they cut the debtor off after approximately 60-90 days past due and each filed suit. All three obtained judgments against the debtor for their respective claims. When the collector shared this information with the creditor, the manager was stunned. Not only had their customer continued buying their products, but three of their own distributors had also been “stiffed” by the very same debtor. The manager’s immediate question was, “Should we become lawsuit No. 4?”
My answer surprised them.
In my view, by the time this claim reached the collection agency, the lawsuit wasn’t the biggest problem anymore.
The biggest problem was that not only did the creditor lose $15,000, they had lost five years of valuable collection time.
In other words, five years of delayed decisions. Five years of accepting promises instead of payments. Five years of extending unsecured credit to a customer who had already demonstrated a pattern of not honoring its obligations. Long before anyone considered litigation, the warning signs had been flashing.
Here are the three biggest lessons that I explained to the creditor
Mistake #1 — They Continued Selling to the Debtor for Far Too Long
The oldest invoices were already five years old before the account was finally placed for collection. Every additional shipment increased the company’s financial exposure. At some point, the creditor stopped selling products and unknowingly started making unsecured loans. One of the most important decisions for any supplier is knowing when to stop shipping.
Mistake #2 — Credit Terms Became Optional
Credit terms only have value if they are consistently enforced. Once a customer realizes there are no meaningful consequences for paying late, Net 30 quietly becomes Net 60, then Net 90, and before long, several months, and even years, have passed. Customers naturally protect their own cash flow first. It’s the creditor’s responsibility to protect theirs.
Mistake #3 — The Manager Needs Credit and Collection Training and Must Implement a Credit Policy
The manager responsible for credit and collections wasn’t careless or indifferent. He simply lacks the training, confidence, and support necessary to handle difficult collection situations. Many small companies invest heavily in sales training but devote very little time to teaching employees how to manage credit risk and/or conduct effective collection conversations. A well-written credit policy, combined with practical collection training, gives employees the confidence to make difficult decisions before small problems become major losses.
So, would I recommend filing suit?
Probably. But with other judgments that we know about already in the queue, the likelihood of any real collection is very low.
But that’s not the lesson here.
The real lesson is that lawsuits usually become necessary only after dozens of opportunities to prevent the problem have already passed. Effective credit management doesn’t begin when an account is sent to a collection agency or attorney. It begins the very first time a customer fails to keep a payment promise.
Remember… the best collection call is the one you never have to make.
Hector
Hector the Collector is a credit, collection, and human resources advice column by Nancy Seiverd, President, CMI Credit Mediators Inc. Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
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