The last year has had its fair share of ups and downs. The effect that the economy tanking in the last half of 2008 had upon our collection law businesses was powerful and widespread. In my conversations with many of you at NARCA meetings and elsewhere, I was told that payment plans were harder to come by as consumer debtors were holding onto their cash while waiting to see where the economy, or their job, was going. The drop in value in the residential real estate market virtually wiped out the ability for people to tap equity in their homes to consolidate and pay bills. Courts were ramping up their scrutiny on documentation to support a lawsuit, especially for suits filed on behalf of the debt buying community.  
 

On the other hand, business was beating down our collective doors. Delinquencies were on the rise, especially in credit card and auto deficiency debt. Debt buyers were purchasing at lower rates, and a legal strategy became critical to their success. I know this is not news to most of you---you were living this story and, while income from collections was dropping, you were forced to maintain your infrastructure to manage incoming claims and the residual work they produced. It was time to step back and look at how our practices functioned from 20,000 feet up.  
 

What did we have to do in order to survive until the economy began to rebound and debtors were no longer afraid to commit to making payments? Where could we cut to reduce our operating expense yet maintain the level of service our client expects and demand? The answer? Time to look at your "plate charge"  

 

Many of you know I call myself an escapee from my family's hospitality businesses. My father is a 75 year restaurateur, a sister is a pastry chef, her son a chef graduate from the Culinary Institute of America. Heck, even my son Dan ignored my warnings, more happily dabbling in spirits and currently studying for his second level certification as a beverage manager and sommelier. But the most important tidbit of knowledge I took with me from years in the grip of the restaurant business was, besides delivering top service, you had to know your plate charge. How much did it cost you up to the point where a customer was seated at the table?

 

Restaurant management took into account costs of staff, rent or mortgage, taxes, utilities, and many other related items. This number was divided by the total number of seats in house. Added was the cost of the dishes at that seat, water, condiments, the table, chairs, flatware and linen. Every item that went into the infrastructure of the business counted toward the plate charge; it did not include the cost of the food that was prepared. Bottom line? If the plate charge was too high, the profits on food sales would be lower. Even if the profit on a skirt steak was higher than the profit on salmon, if the plate charge was too high, your profits suffered.  

 

 

There are both simple and complex ways to determine this, and you can kill a mouse with a cannon trying to come up with the perfect number. Also, the collection lawyer has at least two different plate charges to figure: one pre-suit and one for after suit is filed. And the plate charge may be different for each client and different stages of the collection process.  

 

Rent, staffing to the point of opening a file and sending a demand (and related charges like insurance and postage), furniture, telephone (and dialer) and other fixed monthly charges can be calculated from your budgets (c'mon, you ARE preparing budgets, right?). In the simplest sense, you can total these costs from a series of months and come up with a total, say $35,000.00. If you open 1500 files, your plate charge is $23.33. In other words, to get to the point of bringing in a file and getting your letter out, with labor, rent and consumables taken into account, you've invested $23.33.  

 

The plate charge will creep up as other layers of work are put into a file. If a customer comes into a restaurant but never leaves the bar, the plate charge is lower as only glassware comes into play. After a letter is sent, collectors, phone and dialer costs are added to the mix, all without collecting any money and earning a fee. If suit is needed, there's more to add to the total, like the cost of additional word processing labor, paper, and attorneys to attend court. It's possible that the plate charge will double, or more. Again, this is a simple analysis, and will vary by jurisdiction, especially if lawyers don't appear on default judgments or routine matters.  

 

Review your plate charge components, and seek out those factors where inefficiencies appear in the process. Map out these functions so that bottlenecks can be discovered and attended to. Can some process be outsourced and cost less than if handled in-house? Mailing services that can pre-sort and save on postage or paper? Skip tracing for assets or employment? A better understanding of your software so as to batch more work and get higher production per employee? If so, your plate charge will go down, and in turn your unit yield, or fee per file, will increase. Just like in the skirt steak example, it's time to start looking at which clients produce a higher fee on an average file.  

 

Finally, as I said, some clients may force a higher plate charge at different stages of collection. And remember to take into account the maintenance factor for each client. Are they micromanagers that are constantly emailing or on the phone, is their interface easy to use, and do they have and send media to support your claim? Are they requiring work or tracing efforts on dormant files more often than other clients? Do they want suits filed on small balances? If the maintenance factor is high, it will eat away at your unit yield, leaving the difference between that and your plate charge either very small or nonexistent.  

 

Obviously, if we can get the debtor to belly up to the bar and pay before the plate charge grows higher, our net unit yield will rise. But we know that's a rare occurrence, and the customer usually pays after dinner is done and the dessert plates are being cleared by the busboy, sort of the garnishment stage. We've spent more on average to get to this point, so the net yield is lower. We can raise the yield if we lower our costs leading up to this point, or do a better job earlier in the collection process. It's time to take a look at that plate charge, and put into place more efficient, cost saving measures that will yield a better bottom line.

 

Summary
 

 

 

 

Louis Freedman limits his practice to creditors' rights. He is a graduate of Washington University, St. Louis and The John Marshall Law School. Mr. Freedman is a Past President of the Illinois Creditors' Bar Association, having also served as Legislative Vice President, and has assisted them in drafting and passage of key legislation in the Illinois General Assembly to save Wage Deduction and Citations to Discover Assets, and headed the effort to reinstate garnishments upon federal and postal employees.

He is a charter member of the National Association of Retail Collection Attorneys (NARCA), currently serving on the Board of Directors as co-chair of the Public Affairs Committee, after working with Outreach, Convention and Strategic Marketing panels. Other memberships include the Commercial Law League of America, as well as the American, Illinois State and Chicago Bar Associations. Lou is a former Chair Arbitrator for the Mandatory Court Annexed Arbitration Program of DuPage County, Illinois. He is a frequent speaker before various Bar and Trade Associations, and has lectured for the Illinois Institute for Continuing Legal Education.

 

Attorney Freedman can be reached at Freedman Anselmo Lindberg & Rappe LLC P.O. Box 3228 Naperville, IL 60566-7228 Phone: (630)983-3391 Fax: (630)983-1487 or via email at lou@falrlaw.com