A significant part of running a business is collecting on customer accounts after products or services have been delivered. In most cases, individual customers are quick to pay what they owe, but every now and again, there is a bad apple or two who refuses to pay up. Getting frustrated with a late- or non-paying customer is often a waste of energy, but businesses do have an opportunity to motivate payment by reporting the delinquency to the credit bureaus. Here’s how to do that for individual customers.
Membership with Credit Reporting Bureaus
For businesses looking to report delinquent accounts for individual customers, not other businesses, joining the credit reporting bureaus as a reporting member is the most effective method. Each credit reporting bureau – Equifax, TransUnion, and Experian – charges a small fee for membership and has specific requirements which must be met in order to become a data furnisher (a business that can report directly to the agencies). Requirements may include having a minimum number of accounts and a process or system in place to report these accounts on a monthly basis accurately. Below are the account minimums and processes for each credit reporting bureau.
- Equifax: For businesses in the U.S., Equifax requires reporting for a minimum of 500 accounts and approval before becoming a data furnisher. Contacting Equifax at 1-888-202-4025 is the best way to go about gathering application requirements and getting a breakdown of membership fees.
- TransUnion: Businesses must have no less than 100 accounts available for reporting, and each data furnisher request is reviewed prior to acceptance. TransUnion fees and application requirements can be determined by calling 1-866-922-2100.
- Experian: Each business wishing to become a data furnisher with Experian must submit an application that is reviewed on a case-by-case basis. Experian can provide fee and application process information via phone, at 1-800-831-5614.
Under FCRA, it is recommended that debts be more than 90 days old before reporting directly to the credit bureaus. It is also important to understand that in most cases, individuals who want to report delinquent accounts, like a friend or family member who made a private loan, cannot report directly to the credit bureaus because of these requirements. There are other options, however, that make reporting less daunting, for businesses and individuals alike.
Collection Agency Options
For smaller businesses with delinquencies on the books or those who cannot otherwise report directly to credit bureaus, hiring a collections agency is an option. When a collection agency is used to report bad debt, you simply provide information about the debtor and the amount owed, and they work to collect the debt. They also report delinquent account information under their name, meaning there is no need to be a data furnisher with the credit bureaus. However, a percentage fee is charged for using a collections agency; depending on the amount owed by the customer, it may not be worth it to pursue delinquent debts in this manner.
Credit Reporting Services
In addition to collections agency use, businesses have the option to utilize a credit reporting service. Similar to a collections agency, credit reporting services report directly to the credit bureaus on behalf of the business. However, they do not attempt to collect the debt owed in the process. This can be a less expensive way to get the attention of a delinquent customer, but there is no added help in terms of getting paid.
Small Claims Court
You may also use the court system to collect on delinquent debts. This is the best strategy for those who do not have large delinquencies, or individuals who have lent money to others and cannot meet the credit reporting requirements easily. Going to small claims court means you are bringing a lawsuit against the debtor in an effort to recover amounts owed. If a case is successful, the outcome becomes public information and credit reporting agencies automatically gather the details.
Credit reporting for delinquent accounts can be a smart strategy for getting individuals to pay what’s owed. However, it is necessary to follow state and federal regulations for credit reporting as a business, as well as understand the fees, application requirements, and limitations of each of the options listed above.
