To manage a company successfully, every owner has to stay on top of their receivables and watch their cash flow. Whether you promote a product or provide a service, you probably face late-paying or none-paying customers from time to time. That means that you have to have a sound, consistent internal debt recovery policy in place. Part of your policy should include knowing when to contract out problem accounts to a debt collection agency.
One notable reason this is proper is because your delinquent accounts continue to devalue, at a rate of 15% per month. And the longer an account goes delinquent, the more challenging AND expensive it is to collect. In addition to spending more time, money and resources pursuing these depreciating accounts, its also costing your company in lost opportunity dollars, by taking you away from your core revenue-generating functions. It is far more cost effective and efficient to outsource these difficult accounts to a dispassionate third party debt collection agency.
Here are three main tips to bear in mind when hiring a debt collection agency.
When hiring a debt collection agency, you need to make sure they are licensed in the state(s) where your debtors are located. As collection laws can vary greatly by state, its to your advantage to look at collection agencies that are qualified nationwide. Because we live in such a mobile society, and with people moving across state lines frequently, its better to know a debt collection agency that is accredited in all states are familiar with all the various laws and regulations. In fact, collection agencies can only collect in the states they hold a license in.
Fee structures can differ greatly with different collection agencies. Some offer prepaid, flat fee arrangements, as others charge a ratio of any monies collected, normally with no upfront costs required. Still others can propose some blend of the two. Depending on your establishment, there are advantages to either situation. Though there are upfront costs with flat fee based debt collection agencies, you can save a lot of money in the long run, since the collection costs tend to be a small percentage of the total dollars collected.
Because your costs are unchanging, you can also turn over difficult accounts quicker, when there’s a greater probability for recovering your money. Again, the longer you procrastinate, the more difficult it is to collect.
Still, a lot of organizations elect to give up a percentage of whatever might be collected to avoid the upfront dollar costs. Be sure to compare rates though: a debt collection agency can charge anywhere from 20-50% in contingency fees. One thing to keep in mind though: while you might be inclined to seek out the lowest fees, you should also know that if the fees are very low, it can mean the debt collection agency has limited staff, time and assets that they will commit to collecting your accounts. At the same time as percentage fees charged are significant, success in total recovery is far more significant to your organization bottom line. Whichever option you choose, make sure the debt collection agency you’re considering spells out their fee structure clearly in writing.
Finally, when considering a debt collection agency, you need to think of them as an extension of your organization. Seeing as they will be collecting your money and acting on your behalf, its notable that they reflect your organization’s viewpoint. For instance, if you manage a medical practice, your reputation in the community is something you value. You wouldn’t want to associate with a debt collection agency known to engage in harsh, intimidating and/or inhumane behavior when handling patient collections. At the same time, you want a collection agency that while diplomatic, they are determined, steady and constant in their collections activity.
David P. Montana has written extensively and worked as a business consultant in debt collection services for thirty years. David provides more beneficial tools and information about choosing the right collection agency.