How to Avoid Trouble – Part 4
30 Dec 2014
In How to Avoid Trouble – Part 3, I talked about the third step, ‘Securing Collateral’, in the four-step process that will help new bail agents avoid the risk of ending up in a bad situation that could affect the success, or not, of their business. In this blog, I will discuss the importance of getting your premium paid upfront before you write that bail bond.
Collecting Your Premium
The ‘premium’ is better known as a bail agent’s fee for his services. This is what you count on to make a living. Without it, you would and could be out of business before you get started. Unfortunately, in the bail industry we often deal with individuals who wouldn’t think twice about paying our premiums with bounced checks or stolen credit cards. This is where performing your due diligence can save you from this happening. With co-signers usually being the one to pay the premium, along with offering the collateral, you need to get to know the co-signer extremely well. You should be checking out their background just like you would the defendant.
Never Assume Family is Reliable
Usually, you can rely more on a family member as a co-signer, rather than a friend, but this doesn’t mean that individuals bailing out family members are always honest. I had a call from a woman whose husband was arrested for writing a bad check. Bells should have gone off, but I didn’t hear them at the time. They seemed like decent, trustworthy people, so I assumed, a real no-no, that the defendant was either innocent or had just used poor judgment this time. Then, the wife offered to pay the premium in full by signing over a check she was expecting from a major insurance company. Because I believed her, I accepted the check, deposited in my account and thought nothing more about it.
Then, a week later, the defendant was back in jail for violating his probation and a new bail bond was needed to be written. The wife said she had received a check for a settlement with another insurance company and would write me a check against it to cover the premium for the second bond. I accepted the check and wrote the bond because my bank had no problem with the previous check, so I was comfortable this one would be good, as well.
Surprise! Two weeks after I wrote the first bond, my bank account balance was short. When I called the bank they told me that I deposited two bad checks, which included a fraudulent check from a major insurance company. OUCH!!! Finally, the police called me to tell me that the defendant was printing the fraudulent insurance checks, and that he violated his probation a second time and was back in jail. I could have been left with a huge liability, but the defendant was ordered to pay restitution to me and others he defrauded, so I received monthly payments until the full premium was paid.
I later learned that official checks have watermarks, similar to currency, which I would have detected if I looked at the checks through a light. At that point I could have required cash, which is not unusual for old-school bondsmen. Whatever method of payment you accept be aware not to assume or trust anyone or believe they are honest just because they sound that way over the phone.
Keeping Up with Payment Plans
While offering payment plans for premiums might be a great solution for many of your clients, your due diligence will need to be extremely complete. No kidding. You need to be absolutely sure that the co-signer will be able to make the monthly payments agreed upon. Running a credit check on each person signing the agreement will be your first step. If there is any flaw in this report, you should be skeptical moving forward and writing that bond.
If you’ve read most of my blogs in the past, you will know that the most important and common thread to protect your business is doing a thorough job of due diligence. So, besides making sure that your client can pay the premium on a monthly basis and pay it off on time, if you have several of these payment plans in place, the real key is keeping track of each and every one and making sure that they are paid on time. This is like juggling several balls in the air and being able to catch every one of them. Not easy to accomplish if you’re doing this all by yourself.
I recommend creating a spreadsheet listing the following: Client, Address, Phone Number, Total Amount of Premium, Monthly Payment Amount, Date Each Payment Received, along with Date Started and Date of Last Payment Due. This should be printed out every month, so you can stay on top of your Accounts Receivable and make calls to clients who are Past Due. You don’t want to send letters advising them that they are past due, you want to call them to be sure you get your payment on time, or within a couple of days of the due date. If you don’t create a system to stay on top of your receivables, you will lose control of your income and business. The longer you wait to follow up on a missing or late payment, the harder it might be to locate the client or force him to pay.
The reality is that if you aren’t receiving full premiums for your work, you aren’t receiving enough income to cover your expenses for writing the bond. Remember, you’re an entrepreneur building a business for profit and not in a charitable business. Regardless of how much the client pays up front, you still have to pay your bond costs to the surety, which ranges from 10%-25% of the premium amount, along with a 10% deposit into your BUF account. If the bond was $10,000, the premium would be $1,000 and the upfront payout from your fee would leave you with no nothing or less than nothing because you’d have to payout of pocket. Plus, you’ll probably have to pay more in time and money to collect the balance, or end up having to turn it over to a collection agency; a great deal of work with a great loss of revenue for you and your business. Not to mention, the loss of additional business because you don’t have the time for marketing and taking the calls for new business.
Remember the rule of thumb: it takes 18 bonds of equal size to pay off one forfeited bond. If you accepted only $1,500 down for a $5,000 premium, you will need to increase the number of bonds you write if the defendant forfeits on a $50,000 bond and fails to pay the balance due on your premium. You do the math.
This does not necessarily mean it’s a bad idea to accept payment plans. Just keep in mind that payment plans increase your liability and risk. It’s alright to offer payment plans when business is good and you don’t need the bond to add to your poor cash flow. Here, again, conducting a thorough due diligence process will save you from business failure. Due diligence is the key to lasting success.