All organizations have some customers who delay payments or even avoid them. Unpaid dues or bad debt is an unavoidable problem for all organizations. However, for small businesses, bad debts can take on a nightmarish quality by reducing cash flow drastically. Restricted cash flow hampers the growth of the business. Collection agencies are an asset for all businesses as they are experts in the collection of unpaid dues from delinquent customers. They save you valuable time and money that can be used for business growth.
What Does the Collection Agency Do For You?
When you engage a collection agency, you have an agreement with them wherein they take on the responsibility of tracing the debtors and collecting the debt in accordance with the Fair Debt Collection Practices Act. Collection agencies have trained professionals who work for your business to recover debts at the earliest. You will pay a pre-determined fee to the agency for its services.
Timely Collection of Debts is Vital
Collection agencies follow a business model that motivates them to collect sooner rather than later. Time is of the highest priority in collecting debts. Ignore bad debts long enough, and the debt may never be recovered. A study a few years ago illustrated that the probability of collecting a debt decreases with time. Statistics from the survey show that the chances of the debt being paid are 73% after 3 months, 57% after 6 months, and only 29% after 1 year.
The When and How of Collecting Debts
Small businesses are hesitant to ask for unpaid dues too strongly. This is because they are not familiar with the rules and regulations of collecting debts. They are not clear on how and when to ask for payment that is overdue. Another reason for their hesitancy is the fear of losing future business with the customer. Here is what you could do. For small debts less than $100 send collection letters about five times and then hand over the account to a collection agency or write off as bad debt. For debts over $100, try collecting yourself about three times by writing a letter or making a phone call and then pass the account to a collection agency.
If all attempts fail, you can take legal action. However, it would be a good idea to conduct an asset assessment of the debtor to verify if sufficient funds can be recovered from them. You can also report the debtor to a credit rating agency.
How to Select The Right Collection Agency
The collection agency is conducts a service that has a huge impact on your customer relationships. It is very important to check out the performance record of the agency. The method used to collect debts should be professional, respectful to customers, and within legal bounds. Consider the following before making a hiring decision.
Industry Specialization: Collection agencies with experience working with small businesses are already familiar with the associated difficulties. If they are also familiar with collecting from businesses in your customers' industry then it is a decided plus.
Collection Methods: It is important to verify the methods used by the agency to collect debts. The methods must conform to federal regulations. Besides keeping you safe from legal issues, this also ensures you maintain a cordial relationship with your customers.
Mode of payment: A collection agency can charge either a fixed fee or one on a contingency basis. It would be a good idea to do a fee survey across agencies as fees vary widely. Never compromise on the quality of the collection services to get a cheaper rate. The quality of the agency's services will affect your customer relationships forever.
Collecting debts is arduous and time-consuming. Collection agencies offer professional services to handle this task efficiently. By reducing bad debts and enjoying good customer relationships, your business is bound to do well.