To manage an establishment profitably, a part of your policy should include knowing when to outsource difficult accounts to a debt collection agency. Every owner has to stay on top of their receivables and check their cash flow. Whether you sell a product or provide a service, you probably experience late-paying or none-paying customers from time to time. That means that you have to have a good, uniform internal debt collection policy in place.
» One significant reason this is true is because your delinquent accounts continue to decrease in value, at a rate of 15% per month. And the longer an account goes delinquent, the more difficult and costly it is to collect. In addition to spending more time, capital, and resources going after these depreciating accounts, its also costing your company in lost opportunity dollars, by taking you away from your core revenue-generating functions. It is much more cost effective and efficient to outsource these problematic accounts to an unbiased third party debt collection agency.
Here are some questions you may want to consider when hiring a debt collector:
1) Are they licensed in all 50 states?
Many states require a license to collect a debt in their particular state so its important that the debt collectors are licensed in all 50 states. What if one of your customers moves out of state? Well the collection could become rather difficult and if the debt collector attempts to collect it in a state where you are not licensed the ramifications could be disastrous for you and the collection agency.
2) Do they have insurance?
Ties into number one because collection agencies obtain insurance to protect themselves in case a member violates state or federal laws. It minimizes your company’s risk in case the collection agency makes a mistake.
3) What will be expected of me as a client?
Knowing what the collection agency requires of you is a good thing to maintain an effective working relationship. They are basically an extension of your company and you will want them to act accordingly so the same goes for you. Typically, the collection agency will want you to send them “clean” accounts receivable data, meaning all the balances due and documentation must be correct. Otherwise, it’s just about impossible to collect.
4) What technologies do they use?
You would obviously want the collection agency that you hire to have the latest and up-to-date technology. If they are using the most up-to-date technologies that most likely means they are looking for a long term goal of staying in business. The latest technology also proves more effective debt collection.
5) What do you do differently than other agencies?
There are thousands of collection agencies out there. Some big and some small. Many are great at collection debts but the main thing is what they do differently. Do they send you regular reports that make your company’s AR Departments lives easier? Do they customize their services to better suit your type of business? Ask them how long it takes them on average to see a return on monies owed.
These are some of the more important things to be asking yourself when choosing a debt collection agency. Every company has different needs and more than likely you can find an agency that fits yours.