Accounts Retrievable Systems - Small Business Uncollected Debts
How does a small or home-based business handle mounting unpaid invoices when there is not enough staff to make collection calls? Try hiring a debt collection agency.
There are times when a small or home-based business owner must deal with uncollected debts. The reasons customers do not pay may vary from an unexpected hardship to being an old-fashioned deadbeat customer. It is not something that business owners want to think about but it does happen and it’s better to be prepared than surprised.
An occasional unpaid invoice can be absorbed as a business operating expense. An accumulation of unpaid invoices, however, cannot and must be addressed. After all, any business, large, small or home-based is in business to make money, not to lose it.
Small and home-based businesses usually don’t have the administrative staff or the extra person power to spend countless hours tracking down unpaid invoices. Depending on the number of outstanding invoices, it may make financial sense to hire a collection agency to collect the outstanding debts. Generally, the outstanding amount should exceed certain dollar amount before it is worthwhile to hire a collection agency.
Here are a few things to consider when hiring a collection agency:
1. Look for a collection agency that works with small and home-based businesses. Finding an agency that is familiar with a particular line of business will prove to be more successful than an agency that is totally unfamiliar with the home-based or small businesses operations.
2. Know the debtors. Collection agencies vary as much as businesses do. Look for a collection agency that specializes in collecting from your type of customer. For instance, if the debtors are mainly individuals, find an agency that specializes in collecting from individuals. Same goes for commercial debts, find a collection agency that specializes in commercial debtors.
3. Consider the collection agency’s collection tactics. If the collection agency has been very successful in collecting outstanding payments by sending letters, ask to review the letter before they are sent out. Ensure the collection agency is complying with the Fair Debt Collection Practices Act. Additionally, debtors view the collection agency as an extension of the servicing business. As a result, a properly worded letter may not only prompt the debtor to pay, but it may also salvage the business relationship whereby the customer may come back to continue to do business. Tread carefully however. If they were delinquent before, they may be again.
4. Find out about skip tracing. Make sure the collection agency employs skip tracing. On the occasion when the debtor has moved with no forwarding address and has disconnected the telephone, collection agencies can use skip tracing (accessing various databases) to locate the debtor.
5. Ensure the agency is licensed in the states for which the debtors are located. The last thing any business would want is to receive the outstanding debt only to find out that it was illegally collected through an unlicensed agency.
6. Verify the collection agency has Errors and Omissions insurance. This insurance will protect the business and the collection agency in the event an unhappy debtor sues the collection agency for tactics used to collect monies on behalf of the business.
7. Compare costs. Collection agencies earn income based on either a set fee or on a contingency basis. The contingency is based on a percentage of the debts collected. Before choosing whether to agree to a set fee or contingency, find out the collection agency’s success ratio and contingency fee percentage. For example, if they have a 68% success ratio and are charging a 22% contingency fee based on $25,000 outstanding debts, they would retain $3,740 ($25,000 x 68% = $17,000 x 22% = $3,740).
Small and home-based businesses face many challenges. Collecting outstanding debts will add to the company’s bottom-line profits. Other ways to increase the profit margin is to squeeze as much productivity out of a day as possible and to look into saving money when buying office equipment.
Article Source: www.suite101.com
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