Is Outsourcing To Commercial Debt Collections A Superior Option For Your Small Business?
August 18, 2010 by Guest Author
Filed under Debt
Does your small business have soaring unpaid invoices? Is your staff too busy to call debtors? It may make sense to hire a debt collection agency. For a very reasonable fee, they can collect your bad debts and prop up your finances.
Small and home-based businesses have to face the daunting task of collecting outstanding bills during their course of existence dealing with unpaid receivables. Whether an uncollected debt is the result of legitimate scarcity of money at the client’s end or her being a customary defaulter, outstanding debts need to be collected on priority to avoid loss to business. Business heads need to consider a sensible action plan to deal with these eventualities effectively. Collection agencies are a good option for small and home businesses that do not have the required personnel and resources to collect bad debts adeptly.
While a sporadic unpaid receivable can be absorbed in the business operating expenses, frequent occurrence of such debts take a toll on the cash flow. If the total cost of the unpaid invoices is substantial enough to justify the cost of hiring a collection agency, it is the best bet to get your money from defaulting clients.
Tips for hiring a collection agency
A debt collection agency works on your behalf and it should conform to your policies and customer service standards. The way customers see it, the collection agency is a representative of your business and their experience with the agency will definitely have some effect on your customer relationships. You must weigh in various factors while selecting a collection agency, such as:
* Familiarity working for similar business size and type: Shop around for a collection agency that is familiar with small and home-owned businesses and understands their way of operating.
* Familiarity with collecting from similar businesses: A collection agency that has previous experience working with customers often seen by businesses of your type and size has a better probability of succeeding. Individual debtors and business debtors are very unique and have to be dealt with differently.
* Skip tracing: Sometimes, debtors move without leaving a forwarding address or have their phone lines disconnected. Collection agencies include specialized skip tracing services – accessing numerous databases – to pin down the whereabouts of debtors and remind them of the unpaid bill.
* Type of collection tactics: Run a check on the collection agency’s collection tactics. If the agency has a good success rate from sending out letters to debtors, appraise the correspondence yourself to ensure it complies with the Fair Debt Collection Practices Act. This protects your customer relationships. Respectfully yet resolutely scripted communication can get customers to pay the debt and also go on doing business with you.
* Errors and omission coverage: Collection agencies and hiring businesses are covered from liability by the Errors and Omission insurance if displeased debtors sue them for the strategies used to collect the owed money.
* Licensing issues: The collection agency should have the legal right to practice debt collection in areas occupied by the customers. Otherwise, the collection agency and your business can be charged for illegal collection without a license.
* Collection agency rates: Debt collectors work on set charge or contingency rates. The contingency rate is a percentage of the total unpaid sum collected. It is recommended that you do some math with the collection agency’s success rate and contingency rate before deciding on the pricing option. Calculate the cost of service in both cases – fixed versus contingency, and select the one that works best for you.
Though bad debts are a pain for all businesses, they can endanger the existence of small and home businesses that do not have the necessary resources to protect them when strapped for cash. Collection agencies offer the perfect solution as even after paying for their professional services, you end up receiving more than what you would if you pursued the debtors yourself.
Daljeet Sidhu is at Tradeseam B2B Marketplace. Read our Collection Agencies advice. Sellers join for qualified leads.
