Small Businesses Share Success Stories

Posted on October 05, 2010 by Saldutti

It’s no secret – money is tight is these days … for consumers, for employers, for businesses of all sizes.  However, small businesses are more likely to feel the pinch more as they lack the manpower and resources of larger companies.  More and more businesses are implementing strategies to speed up collections during difficult economic times. 

Last week, we shared some of our tips to ensure debt collection success.  This week, we’d like to share some secrets from actual small businesses.  These companies have been able to reduce average collection periods on accounts receivable, resulting in increased cash flow.  As a whole, average collection periods have dropped from 78 days in 2009 to 74 days in the current year.  That’s down from a 10-year high of 82 days in 2008.

  •  Shorten your billing cycle by 15 days.  This worked for a Missouri-based engineering company that was able to increase their cash flow by 50% in 2009 by doing so.
  •  Focus on the entire business process: credit approval, billing processes, and collection efforts.  By doing so, you will maximize cash flow and minimize back-end collection efforts.
  •  Shorten the gap between the close of the accounting cycle and the day invoices are mailed.  Many companies have found success with this process.
  •  Save your invoices as a PDF and send as an attachment in an e-mail message.  If your email system permits, ask for a message confirmation reply to ensure that the email was received and opened.  A design firm based in California found that this strategy reduced collections by an average of 10 days.
  •  If you’re doing business with a company/customer that is too new or too small to have a credit record, require payment up front or implement COD deliveries.  This is a safe (and fair) way to conduct business until the company has a history of regular payments with you.
  •  Another way to deal with companies with no credit history is to require a down-payment of 50%, and/or periodic installment payments at certain milestones. Down-payments and installments work especially well for consultants and service providers, because you can discontinue work if the customer misses a payment.
  •  Offer discounts for early payment. Call or email the customer and ask if they can pay that day (or that week) if you give them a discount, and then get the money right away through wire transfer, PayPal or a credit card payment. While this process might require a fee, it is worth it to ensure a timely payment. 
  •  Be on the lookout for signs of trouble. If you have trouble reaching someone by phone or email, take that as a negative sign. A sudden silence often signifies distraction and turmoil at the customer’s business. Discontinue services or future deliveries, and work fast to get any outstanding invoices paid.
  •  Create a watch list for slow-paying companies/customers by staying on top of your receivables.  Locate those with the weakest payment history and take action faster with them.  Call within 3 to 5 days of a missed due date.
  •  Utilize ProcessAway, a charge card terminal for the iPhone. The mobile application turns the devices into portable card-charge terminals. The service links to a payment processing system which enables the Apple device user to accept credit payments anywhere there’s Internet access. Customers receive an e-mail receipt for each transaction.  This is particularly good for on-site workers (plumbers, electricians, craft show businesses, etc.)

Secrets to Getting Paid

Posted on September 29, 2010 by Saldutti

Hate collecting your money? Join the crowd. Recent OPEN Small Business Network Polls from American Express shows accounts receivables is the top cash flow concern of small business owners.  You started your business to make a difference, to delight a customer, to express your vision, not to become the bank of choice for your customers.

Handling the debt collection process is a responsibility of successful business ownership. Too many small businesses place aging receivables and collections as a low priority. It’s important to monitor your cash flow and aging receivables on a monthly basis or more. It’s ok to write off bad debt, but in the end, it’s your business savvy to handle the matter that will impact your growth.

So what is a business owner to do?  Here are some suggestions, secrets and other tips to ensure debt collection success. 

Plan Ahead 

  • Create a Credit Policy:  Review our previous blog posts, Credit Policy … Take Two (September 21, 2010), Credit Q&A (September 14, 2010), and The Importance of a Solid Credit Policy (January 26, 2010)
  •  Run a Credit Report: Reduce your overdue accounts by running a credit check on your potential business client before the deal is done. Expect to spend at least $30 on a Dun & Bradstreet report. D&B uses self-reported data but adds credibility by including: banking data from company suppliers, bankruptcy filings, media sources, suits, liens, and judgments.
  •  Check References: Any small business planning to sign a “big deal” would be advised to run trade and bank reference checks. Simply inquiring with your potential client’s or partner’s bank can reveal important banking relationship information and how they have maintained their accounts.

Send a Collection Letter 

  • Take a Positive Stance: Don’t take it personal if your customers aren’t paying the bills. Explore why the bill is late. It could be your client simply forgot. Provide a gentle reminder immediately following the due date.
  •  Increase Directness Gradually: One of the secrets of collection letter mastery is to gradually increase the assertiveness of the letter over time. Your first letter is positive and helpful, the third collection letter may show concern for their situation, and so it builds.
  •  Use Multiple Channels: In today’s electronic age, handling your entire invoicing and collection letter sending by email is simple and quick. It also can ensure your correspondence is buried in an overstuff inbox and low priority. Use additional means of sending out your collection letter correspondence including faxes, phone calls, regular mail, and courier. 

Empower the Right People

  • Make an Executive Decision:  As a small business owner the temptation is great to have the sales people handle accounts receivables. It’s better to assign one person to the task and provide proper support, training, and incentive.
  •  Call in the Heavy Hitters: After numerous calls and collection letter correspondence you’ll reach a point where the account is long overdue. Bring in a collection professional to handle these delinquent clients. Spending too much time and resources can be draining on your operations.

Hire the Right Team

  •  Collection Agency vs. Legal Collection Firm:  While both collection agencies and law firms can collect debt in a suitable manner, a legal collection firm does have significant advantages.  While both may use similar techniques in the beginning, a letter or phone call from a lawyer will likely prove more intimidating than one from a collection agent.  However if a payment is still not received, a legal collection firm can protect a creditor by promptly proceeding with litigation.
  •  An Extension of Your Business:  Whether you opt for a collection agency or legal collection firm, think of these associates as an extension of your company.  Their professionalism and courtesy (or lack thereof) will ultimately reflect on your business and could alter your reputation among your customers.  It is crucial to select a reputable firm, preferably one that is a member of at least one trade group such as the American Collectors Association (ACA International), Commercial Law League of America (CLLA), or the Commercial Collection Agency Association (CCAA). 
  •  Don’t Ignore FDCPA: There are laws and regulations as to how collection professionals can go about collecting debt. Debt collectors cannot lie to, mislead, or harass your customers. Make sure the collection specialists you select abide by the Fair Debt Collections & Practices Act (FDCPA).  See post The Fair Debt Collection Practices Act (February 10, 2010) for more information.    

Credit Policy … Take Two!

Posted on September 21, 2010 by Saldutti

Because we feel that a Credit Policy is an invaluable tool (and a necessity in today’s unstable economic environment), we’ll further expand on last week’s post. 

By definition, a credit policy is simply “clear, written guidelines that set (1) the terms and conditions for supplying goods on credit, (2) customer qualification criteria, (3) procedure for making collections, and (3) steps to be taken in case of customer delinquency.

Every business that doesn’t accept payment at the time of the sale must have a credit policy in place or they run the risk of losing money.  This doesn’t have to be a slow and painful process.  In today’s world, people have come to expect convenience and speed – and your customers are no different.  Here are a few tips to make your credit policy quick and simple:

  1.  Make it easy  – have packets paper-clipped together at the front desk; include the credit application, automatic payment permission forms and anything else you want filled out before opening an account.
  2. Make it quick – have these packets ready and waiting for anyone who comes in.  Have pens and clip boards available so they can be filled out immediately.
  3. Make it painless – have your customer wait and run the credit application while they are still there or respond to them within a reasonable period of time (24 – 48 hours).

Additionally, here are some helpful Do’s and Don’ts when it comes to Credit Policies:

 THE DO’s

  • DO develop a credit and collection policy if you are going to offer credit to your customers. Planning ahead and knowing how things are going to work will save you a lot of time and energy later.
  • DO be sure that your credit policy meets your cash flow needs. Be sure that you have enough money coming in from your invoices to pay your company’s bills to its vendors.
  • DO try to talk to your customer in person or on the phone about his or her past due bill. It is much easier to ignore a bill or reminder notice than a person.
  • DO ask your customer to give you a specific date when the payment will be made when you talk to him or her about a past due bill.
  • DO listen to your customer’s reason for not paying the bill. If there is a problem that your company can fix, you should do so.
  • DO contact your attorney regarding your credit and collection policy. Your attorney will be able to advise you regarding state and federal laws applicable to collection matters.

THE DON’Ts

  • DON’T let customer obligations “slide” without taking any collection action. The longer that you let an account go, the harder it will be to collect.
  • DON’T get angry if your customer makes excuses for not paying. Instead, calmly ask the customer for a promise of when he or she will be making payment, and in what amount.
  • DON’T have the person who sold the product be the one to collect the debt. The sales person will usually not have the ability to be impartial.
  • DON’T threaten to turn the account over for collection unless that is what you are actually going to do.

Credit Q&A

Posted on September 14, 2010 by Saldutti

Do you have a question about credit or collections?  Do you need advice on how to handle a late-paying customer?  Do you have concerns about your credit application? 

Email us with your concerns – and we’ll post your questions, along with our response, on a future blog post or in upcoming newsletters.  Contact us at newsletter@saldutticollect.com.

Q&A – Creating a Credit Policy

One of the most frequent questions we receive from our clients pertains to their credit policies.  We’ve discussed in a previous post how crucial it is to implement a credit policy (see The Importance of a Solid Credit Policy), particularly in today’s tight economy.  If your business doesn’t currently have a credit policy, or if it just needs a fresh update, consider these 12 steps in creating a sound and effective policy:

  1. First and foremost, you must understand its purpose.  A credit policy is essentially just a consistent set of rules for deciding which of your customers is credit-worthy.
  2.  Decide on how much of your cash you are willing to set aside to cover credit purchases. Essentially, you are financing purchases with cash out of the company’s pockets. Don’t allocate so much of your capital for credit that your company has to borrow money to cover its ongoing expenses.
  3.  List the factors you will consider when deciding whether to give a customer credit.
  4.  Consider how much credit you are willing to extend to individual customers. Start all but your most credit-worthy customers with lower amounts that build as they prove their ability to pay on time.
  5.  Decide on your credit terms, including the length of time for which credit will be offered, how late paying customers will be notified, the penalties for late payments and when you will write off bad debts.
  6.  Have your credit policy written up (or at a minimum reviewed) by a professional collection attorney.
  7.  Put the policy into practice. Apply your credit rules to all customers. Enforcing the rules inconsistently is not only bad for business, but also illegal.
  8.  Test your credit policy in real time. Track the results looking for the impact credit has on your sales and cash reserves.
  9.  Analyze the data. Look for trends which may indicate if your policy is too strict or too lax.
  10.  Revise your credit policy based on your findings. If you are having too many slow or no-pays, or if too much of your money is being tied up in credit, create new guidelines.
  11.  Experiment with using incentives to balance out your cash and credit sales. Offer discounts for paying with cash if you have too many credit customers. Extend low interest rates to your good credit customers to encourage them to spend more using credit.
  12.  Monitor your sales constantly. Tweak your credit policy as necessary to keep it an efficient tool for increasing sales.

Show Me the Money!

Posted on September 07, 2010 by Saldutti

According to a recent Experian report, the national average number of days that businesses paid their bills beyond contracted terms increased by 2% in July compared with June. When compared with six months ago, the average payment beyond contracted terms has increased by 3.3%. The Experian report also showed that the national average dollars delinquent and dollars severely delinquent (91 or more days) are up (6% and 13%, respectively) when compared with six months ago.

If your business is owed money, there are many ways to handle the situation – as we have discussed in numerous posts.  However one of the most easy – and effective – solutions is to simply pick up the phone. 

In addition to reviewing the FDCPA guidelines (see our post, “Taking Matters You’re your Own Hands” for more info), here are 10 important Do’s and Don’ts that can help ensure successful telephone collection.

10 Telephone Collection Do’s

  1. Do know the details of the account – what amount is due, for what products/services, and when it was due.
  2. Do have positive expectations of every call.
  3. Do identify yourself and the person you are speaking with – every time you call.
  4. Do maintain control of the conversation; stay calm and professional.
  5. Do insist on payment – in full – unless other arrangements are necessary and acceptable to you.
  6. Do listen – make the customer feel he has your undivided attention.
  7. Do follow the “Golden Rule” – treat the customer the way you would like to be treated.
  8. Do document all details of the call, especially if there is a dispute.
  9. Do set specific follow-up dates with the customer.
  10. Do maintain a good relationship with the customer.

10 Telephone Collection Don’ts

  1. Don’t eat, drink or chew when speaking on the phone.
  2. Don’t use a speakerphone when talking with a customer.
  3. Don’t put the customer on hold, unless absolutely necessary.
  4. Don’t take a negative attitude. Do not use the words “can’t”, “won’t” or “don’t”.
  5. Don’t threaten, shout at, curse, or hang up on the customer – no matter how he/she behaves.
  6. Don’t interrupt the customer.
  7. Don’t accuse the customer of lying.
  8. Don’t give the customer an excuse for non-payment.
  9. Don’t consent to smaller payments without knowing all the facts.
  10. Don’t overlook alternate sources for obtaining payment – guarantors, owners (if it’s a sole proprietorship or partnership), etc.

Money 101: Life Lessons for Kids

Posted on September 01, 2010 by Saldutti

Did you know …

  • The average college graduate has nearly $20,000 in debt?
  • Nearly one in five 18 to 24year-olds is in “debt hardship?”
  • Undergraduates are carrying record-high credit card balances – the average (mean) balance is $3,173?

Now more than ever before, it is vital that we teach our teens and young adults about credit.  One of the reasons so many Americans seem mired in bad debt is that financial education is practically nonexistent.  The life lessons we have learned through the years are not regularly taught in schools.  While access to credit might be harder to acquire now than in the height of the credit card boom, half of college undergrads had four or more cards (according to a 2009 Sallie Mae survey).  Teenagers are also more susceptible to consumer fraud due to today’s technology and a general lack of experience in the financial world.  Young Americans don’t realize just how much damage a bad credit score can do and how it will force them to put some of their future dreams – owning a home or car, starting a business, or even getting job – on hold. 

Here are a few tips for teenagers to consider before they step into the “real world.”

Encourage Financial Responsibility – Young adults who are still living at home and make money through a part-time job have ample opportunities to spend their money.  More often than not, they chose to spend on entertainment, transportation, apparel or other tangible items because they don’t have major obligations such as a mortgage, electricity or water bill.  It’s important to teach teens how to prepare themselves to make major decisions involving money and consumer transactions. An ideal time to do this is while you’re paying the monthly bills.  Let them review your cable and utility bills with you so they have an idea of what’s in store for them when they move into their first apartment.  Involve your teen but letting them assist you in reconciling your bank statement. 

Teach Good Debt vs. Bad Debt – It is imperative that your children know the difference between good debt (debt that’s used to buy assets that grow in value over time) and bad debt (debt that’s used to buy things that will lose value) early on.  See our August 10th blog post for more on this subject. 

Give an Allowance – Starting in kindergarten, give your children a weekly or monthly allowance and offer them the opportunity to perform extra jobs around the house for money. According to the 2010 Charles Schwab Families & Money survey, 53% of parents whose children had four or more regular chores while growing up considered their now young adult children to be “very financially responsible,” compared to 46% of parents whose children had one to three regular chores, and 39% of parents whose children had no chores. The more chores they did, the better the kids were with money (at least in the parents’ eyes). I’m sure many of us who ever did chores for an allowance can remember how it helped teach the meaning of a dollar.  Refrain from constantly buying them things and show them how to make choices with their own money-buying decisions. 

Open a Savings Account – Encourage your children to save by opening a savings account.  Ask them to put a percentage of their monthly income into it as well as a portion of monetary gifts received throughout the year, for holidays, birthdays, graduation, etc.  If possible, offer to make a contribution once it reaches a certain amount or even match their donation.  Let them watch their savings and interest grow by reviewing their bank statements.

Get to Know Us – The Good Debt Collectors

Posted on August 19, 2010 by Saldutti

When times are tough there are always certain companies that thrive based on their business model.  From discount retailers to fast food restaurants, health care firms to tobacco companies, some businesses are riding out the financial storm in good shape.  Another sector that is usually over looked is the debt collection business.

During the recession, debt collection firms were in high demand as the default percentage on loans surged. Initially it was more difficult for firms to collect but now that the U.S. is slowly showing signs of a recovery, collection rates are improving.  Hence, the account receivables industry is predicting future growth.  According to a recent survey, 39% of collection agencies reported that they will be adding jobs in 2Q 2010.  

The debt collection industry is practically recession-proof and has done its part in chipping away at the high unemployment rate.  So why are we continually perceived as “the bad guys?” 

A July internet news story titled Payback? Consumer Lawsuits Against Bill Collectors Skyrocket, provides an important perspective on the challenges faced by debt collection firms. While the issue of collectors being overly aggressive is legitimate, the reality is that there are other factors contributing to the rise in consumer complaints and lawsuits.

As we’ve said in previous posts, any reputable and professional collection firm opts to be part of a trade group such as the National Association of Retail Collection Attorneys (NARCA), Commercial Law League of America (CLLA) or Association of Credit and Collection Professionals (ACA International).  Members of these groups adhere to a stringent code of ethics that requires both respect for the law and respect for consumers’ rights. The Fair Debt Collection Practices Act and individual state laws regulating the industry are the law. Debt collectors who disrespect consumers and break the law should indeed be held accountable.

When complaints or questions do arise, most collection firms will work quickly to resolve the issue.  The trade groups are continually working with the Federal Trade Commission and state regulators to better assess consumer complaints and to ensure that, as an industry, they better understand and diligently address them. According to the Council of Better Business Bureau’s 2009 data, the collection industry resolved 85% of the complaints it had received, compared to the average of 73.8% among all industries tracked by the BBB.      

It is truly a shame that some of these “bad eggs” taint a profession that benefits our nation’s economy. Recovering money owed to creditors is essential. Typically, U.S. businesses write off more than $140 billion in consumer debt. Debt collection firms are able to recover more than $40 billion of that. The collection industry directly and indirectly employs more than 300,000 people with a payroll of more than $11.5 billion.

If you’re in the market for collection assistance, we can assure you that there are many “good guys” out there.  In addition to collection rates and fees, make sure that the company is affiliated with at least one professional trade association.  Also, a collection law firm will always be able to take those additional legal steps if necessary.  Don’t immediately write off a law firm due to the perceived high price tag.  In addition to blended arrangements and flat-fee rates, Saldutti, LLC will work on a contingency basis allowing us to share the risk with our clients.

Debt: The Good, the Bad & the Ugly

Posted on August 10, 2010 by Saldutti

In this day and age, it’s nearly impossible to live debt-free.  From homes to education, cars to vacations, clothing to appliances – the amount of personal debt in this country is ever-increasing.  As a country, Americans tend to spend more than we can afford.  According to CardWeb.com, the average U.S. household carries nearly a $10,700 balance on their credit cards.  In addition, personal bankruptcies are at an all-time high.

No matter how we try, most of us can’t avoid debt entirely.  It’s not wise to deplete cash reserves should an emergency ever arise.  The challenge is learning how to judge which debt makes sense and which does not and then wisely managing the money you do borrow.

Debt is a complex concept. Not all of it is good — and yet not all of it is bad. When used intelligently, debt can be of tremendous assistance in building wealth. 

The Good

Good debt is investment debt that creates value; or something that builds wealth over the long run.  The number one example of this is mortgage debt.  Other types of good debt would be student loans, real estate loans, and business loans.  These types of debts are also typically tax-deductible which can be a big help around tax time.  Another smart way to use good debt is utilizing a low-interest home equity (tax-deductible) to loan to pay off a high-interest credit card. 

These general rules set a clear definition – buying a home or refinancing to get rid of excessively high rates is usually good debt, as is generating debt to buy high-return stocks, bonds and other investments. 

The Bad

According to David Bach, CEO of Finish Rich, Inc., “when you buy something that goes down in value immediately, that’s bad debt.”  If it has no potential to increase in value, it is typically considered to be bad debt.  Auto debt is a good example of this.  While most people need an automobile, the overall cost of a car is higher than many people can pay in one lump sum.  So a person will finance the car, often purchasing more than what they actually need, which inevitably turns into bad debt.

There are always exceptions – for example buying a car that gets better gas mileage than your previous vehicle or opting for a car that costs significantly less than your former one.  In this situation, a consumer might end up better off financially.

The Ugly

The worst kind of debt comes in to play with the purchase of disposable items or durable goods using high-interest credit cards and not paying the balance in full.  Some people do not have enough disposable income to pay the entire balance before the due date – and this spells trouble. 

Every month that you make a partial payment on a credit account, you’re charged interest – sometimes as much as 20 percent or more. The item you purchased continues to lose value, and the amount you paid for it continues to increase.

Store credit cards can be particularly brutal.  In addition to the fact that clothes are typically worth less than 50 percent what you pay for them, retail card interest rates can be sky high.  The store might lure a consumer in with a special promotion when the account is opened, however people fail to realize how much of that savings will be destroyed by the high interest rate if they fail to pay for the items immediately.

The Bottom Line

As we’ve discussed in previous posts, bad debt could potentially harm your credit rating.  If you bite off more than you can chew, it will be extremely hard to keep up with payments.  Missed payments over 30 days are reported to the credit bureaus and may cause a drop in your score.  This, in turn, will affect your ability to refinance, acquire new credit cards or receive approval for auto loans, business loans or a mortgage. 

Now more than ever, it is imperative to keep your debt in check.  According to financial experts, your total monthly long-tern debt payments, including mortgage and credit cards, should not exceed 36 percent of your gross monthly income.  This debt-to-income ratio is one way mortgage bankers assess the creditworthiness of a potential borrower. 

If possible, treat credit cards like emergency safety nets – only use when you are in dire need of a specific item or service and are unable to use cash.  Use the credit card this carries the lowest interest rate and organize a payment plan to pay it off as soon as possible. 

Past generations used a good rule of thumb:  “If you can’t afford to pay cash, then you can’t afford it.”  And in the wise words of one of our founding fathers Benjamin Franklin, “I would rather go to bed supperless, than rise in debt.”  Food for thought indeed …

The Do Not Call List & Debt Collectors

Posted on August 04, 2010 by Saldutti

Consumers have sent a clear signal that they don’t want those pesky dinner-time calls.  Some 200 million phone numbers have been added to the Federal Trade Commission’s Do Not Call Registry since the blocking service was launched seven years ago, according to the agency.

Recently, there has been a sharp rise in complaints about calls from debt collectors, even though the consumer is listed on the Do Not Call Registry.  Unfortunately, these people end up thinking the law isn’t working – but that’s not the case.  The National Do Not Call Registry was created to stop calls from telemarketers. The Federal Trade Commission (FTC) defines a telemarketer as “someone who makes or receives calls to or from a customer to get that person to buy good or services or to make a donation.” The FTC further defines a debt collector as “an individual or business that collects or attempts to collect debts.”  A debt collector isn’t a telemarketer and wouldn’t fall under jurisdiction of the Do Not Call Registry.

When you signed up for a credit card or loan, you most likely gave permission for the bank to use a third-party collector to collect any delinquent debt from you. So, ultimately, you gave permission for the collectors to call you to collect the debt and signing up for the National Do Not Call list won’t stop calls from debt collectors.

Debt collectors and legal collection firms are not exempt from all rules.  The Fair Debt Collection Practices Act (FDCPA) is a federal law consisting of stringent policies that govern how a debt should be collected.  These regulations are strictly enforced by the FTC.  A professional debt collection firm would never call before 8 a.m. or contact you after 9 p.m.  Additionally, a reputable collector would not harass, threaten, lie or conceal their identity.  There are several other guidelines listed in the FDCPA – see previous blog posts for more details. 

The following are some other common questions regarding the registry:

Is the Do Not Call Registry about to expire?  No.  If you’ve signed up, your numbers are protected indefinitely and you don’t need to re-register. There isn’t any movement to do away with the registry at the FTC.

After I register, will I see an immediate reduction in calls?  No.  While your phone number will show up on the registry by the next day, telemarketers have up to 31 days to remove your phone number from their call lists. 

Will I receive written confirmation that I am listed on the registry?  No.  You can verify that your number is on the registry by visiting the web site at www.donotcall.gov or by calling 1-888-382-1222 and following the prompts to verify your information.

Can I register my business phone number or a fax number?  No.  The Do Not Call Registry is only for personal phone numbers. Business-to-business calls and faxes are not covered by the National Do Not Call Registry.

Does the registry only apply to land-based home phone lines?  No. The registry accepts cell phone lines as well.

Will charities be able to reach me by phone?  Yes. Charities, political organizations and telephone surveyors are still permitted to call numbers on the registry. Also companies that consumers have done business with in the past 18 months can contact their customers.   Of course, the debt collector will have access too.

If you would like to be added to the National Do Not Call Registry, call 1-888-382-1222 or log on to www.donotcall.gov.

Debit Card Fraud – Be On The Alert

Posted on July 27, 2010 by Saldutti

American consumers are increasingly relying on debit rather than credit cards. Debit card spending has risen steadily – growing from 47% of purchases in 2003 to 59 % in 2008.  According to the Nilson Report, it’s expected to surpass 67% by 2013. 

Criminals have definitely taken notice. Fraud detection analysts note that while there has been an increase in all types of card fraud, ATM and debit card fraud is the top area of concern.  Scammers are becoming more slick and sophisticated and incidences of debit card fraud are becoming more commonplace.   

The most notable variation of this fraud is “skimming.” Skimming, a form of ATM fraud, allows a criminal to steal a consumer’s card number and PIN code – everything needed to effectively empty the victim’s bank account. They set up equipment that captures magnetic stripe and keypad information when you input your PIN at ATM machines, gas pumps, restaurants, or retailers. 

With nearly 2 million ATM machines in operation worldwide, criminals have a wide array of potential targets. The losses due to debit card fraud are expected to continue rising as the crimes, and their perpetrators, become more sophisticated. The Nilson Report states that losses due to fraud involving credit and debit cards rose 7% between 2008 and 2009. That number is expected to total $10 billion by 2015.

There are steps consumers can take to prevent debit card fraud: 

  • When possible, use only ATMs that are located inside banks, where it’s much more difficult for a criminal to install the skimming hardware
  • Don’t type in your PIN at the pump – gas stations are notorious places for skimming software.  Use a regular credit card instead
  • Cover the keypad with your other hand when entering their PIN, to prevent any prying eyes from recording the code
  • Check your bank statements immediately and thoroughly – make sure all payments are yours
  • Closely monitor your account balance and transactions, by utilizing online banking, telephone, or by printing interim statements at the ATM
  • Contact your bank immediately if your card is lost, stolen or subject to fraudulent use
  • Keep a record of card numbers, PINs, expiration dates and 1-800 numbers for banks so you can contact the issuing bank easily in cases of theft
  • Memorize your PIN number. Don’t use your birth date, address, phone number or social security number. Never store your PIN with your card, and do not make it available to others
  • Keep your receipts. You’ll need them to check your statement. If they have your account number on them, tear up or shred receipts before throwing them away
  • Mark through any blank spaces on debit slips, including the tip line at restaurants, so the total amount cannot be changed
  • Know your limits. Many issuers limit daily purchases and withdrawals for your protection
  • Do not use an ATM if it looks suspicious, it could be a skimming device
  • Be wary of those trying to help you, especially when an ATM “eats” your card, they may be trying to steal your card number and PIN
  • Do not give your PIN number to anyone over the phone, often thieves steal the cards and then call the victim for their PIN, sometimes claiming to be law enforcement or the issuing bank