Accounts Retrievable Systems – Choosing A Collection Agency
There is no question that using a debt collection agency is a sensible move for small and medium sized companies.
The debt collection industry, probably more than any other, has suffered with a bad reputation. Whilst there are undoubtedly some bad eggs out there, there are many more very professional, conscientious outfits.
The question you need to ask before you start choosing an agency is why exactly are you choosing one? What debt do you want collected?
Many companies start thinking about using an agency when a debt is written off. This is undoubtedly too late.
Written off debt is only attractive to the type of debt collection agency who will ask for money up front.
My own personal view is that paying for debt collection services in advance is a very bad idea. At our agency in London, we often get calls from companies wanting us to chase other agencies that have been paid up front fees.
A debt collection agency is best used at a specific age on your ledger. The age this happens should be based on a number of factors. Your credit terms, your in-house resource, your client base etc.
If you have in-house credit control make sure they concentrate on the more collectable debt. This will usually be between 30 – 65 days. If a debt on 30-day credit terms has not paid after 60 days and a problem hasn’t been highlighted, experience will tell you that this will take some extra pushing to pay. In-house credit departments can spend half their time working on these types of problem debtors, resulting in less time with the more collectable debt.
Result: Debtor days go up, cash-flow goes down.
Using a professional agency at this point will avoid these pitfalls.
The key areas to check on an agency would be:
– Current Clients. Ask for names and contact details. Then check them out. For me, this should be the number one thing to do on your check list.
– Make sure the fees are based on a No Collect / No Charge basis (between 5% – 15% and the debtor still pays you. You are then invoiced separately on monthly basis.
– Try and ensure you have collectors who are allocated to your account. This will ensure they start to understand your business and your clients.
– Set up review dates at quarterly periods.
– As strange as it may sound, don’t let membership of any association sway you one way or the other. Membership tends to be based on paying fees alone.
– Choose an agency who is willing to collect debts in your name
Choosing the right agency can be the difference between survival and failure and can give a huge boost to your company’s cash-flow.
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