Collection agencies help businesses secure payments from late-paying customers. If you are struggling with your collections, you might want to hire a debt collection agency.
Collection agencies, or debt collectors, contact late-paying customers through phone calls, emails, and letters. They also use special resources to collect your receivables. Debt collectors can gather records of the customer’s assets to see if they are able to make a payment.
Sometimes, customers change their phone numbers or addresses. Collection agencies can find their new contact information with skip tracing services. With skip tracing, the debt collector uses unique databases to track down customers.
When you work with a collection agency, you usually don’t pay for services unless a collection is made. Ask for the agency’s pricing structure. Some collection agencies charge a percentage of the debt collected, with rates ranging from 15% to 33%. Others charge standard rates.
When to hire a collection agency
Every small business is unique, so there is no definite time to hire a third party debt collection agency. But, there may be signs, such as the aging of accounts receivable, that could point you towards a debt collector’s services.
If you have invoices that are 60 to 90 days past due, you might need to hire a debt collection agency to provide invoice collections. Do you relate to any of the following situations?
Your cash flow is suffering from slow collections
A late payment can slow down your entire operating system — and your cash flow. A collection agency can use its resources to collect receivables while you focus on your business. Hiring a debt collector can help you get paid faster and get your cash flow back on track.
The customer avoids payment
Maybe your own collection phone calls are answered with lengthy excuses and broken promises. Or worse, the customer ignores you completely. You could turn all the stressful, time-consuming phone calls over to a debt collector. Then, you can focus efforts on your paying customers.
The customer wants to pay, but can’t
A customer might be unable to pay you because of financial issues. Knowing the customer, or recognizing their situation, might make it hard to be persistent. You need your receivable,
but you don’t want to ruin the relationship. A collection agency can collect as a neutral party. This could lessen the stress of confronting customers.
Collection agencies can be helpful to small businesses. But before you hire one, you might want to try to collect on your own. That way, you won’t have to share your profit with an agency. The following steps can help you collect your receivables.
For faster collections, first create invoice payment terms by clearly communicating to customers. Specify how much you want to be paid, payment due dates, and consequences for late payments. Be sure that the customer understands the terms.
If the payment due date passes, follow up with the customer. Don’t procrastinate making contact. The longer you wait to address a late payment, the harder it is to collect money.
If more time passes without a payment, send the customer a collection letter. You should have an attorney look at the letter before you send it.
What to look for in a collection agency?
When you hire a collection agency, there are several factors to consider. The collection agency needs to be licensed. Every state has its own rules for licensing. The agency should also have insurance. If a third party debt collection agency is aggressive with a customer or violates a law, you could be sued if the agency is not insured.
Usually, collection agencies specialize in certain areas. Look for one that concentrates on your business’s size and industry. Also, be sure the type of third party debt collection agency collects fall under your needs.
While collection agencies should be diligent, they should not use aggressive tactics. Debt collectors need to respect your customers.
Do you need a simple way to manage your receivables? With a third party debt collection agency’s easy-to-use accounting software, you can create unlimited invoices and record all your transactions.