Accounts Retrievable Systems- Collecting Past Due Debts
If you have a substantial amount of past due accounts and you are not using a commercial collection agency, then you are leaving money on the table. Many businesses, especially small and medium size businesses will ignore the possibility of collecting overdue accounts with help from a professional agency. There is an attempt to collect internally, using employees in the accounts receivables department, but it ends there. A business owner needs to understand that this is a specialized area of business and there are companies that have the knowledge and skill set to recover much of the debt that has been deemed uncollectable by a business.
Commercial Collection Agency
A commercial collection agency will often work on commission basis, taking a certain percentage of the money that they are able to collect from the debtor. This represents money that a business would not have been able to collect on their own. Much of this money is collected by an agency in the first few weeks that the accounts are given to them. This means a fast infusion of cash to your firm along with an increase in cash flow from a source that was unexpected.
There is very little downside to using a good collection agency regardless of the size of the company. For large corporations it can mean a substantial savings on labor by simply contracting this work out; and if the agency represents any increase in efficiency in collecting these debts, and they usually do, that will mean a greater cash flow.
There are a variety of services that are offered to a business, not the least of which is the collection of international debts. Many businesses are at a loss to know where to begin in trying to get the money owed to them. But there are many good agencies that offer this service, some of them even have a specialty in the field.
In many cases an agency can help locate a debtor that has moved without leaving forward contact information. Skip tracing is a skill that most companies outside the field of debt collection do not have. It is a combination of knowledge and skill that takes time to develop. With the case of commercial debt, there are many who walk away from a business while still owing money. These people can be found, and when presented with the debt owned, will often pay.
Commercial Collection Agency
Along with locating the debtor, a commercial collection agency can apply a variety of techniques that enhance the probability of recovering the money owed. Cash settlements for a reduced amount owed are one example. Others include final demand letters, as well as assistance in bringing legal actions against a business when necessary.
Each business has a different set of needs for debt collection, so there are going to be a different approaches as well as different degrees of effort that are needed. Prices will vary from agency to agency, therefore, it is important to gather the necessary information to get a quote on the work that will be needed to help you start getting the money owed to your company.
Debt Collection Services - Accounts Retrievable Systems
Strategy for Success: Hiring Commercial Collection Agencies
Its more cost effective to nurture existing customers than to acquire new ones, so many companies are responding to market pressure by reducing prices, extending terms, and offering promotions. At the same time, they are becoming more aggressive in helping their customers keep to payment schedules.
As it is with parenting, so it goes with sales: simultaneously trying to be good cop and bad cop can be just as confusing for customers as it is for children, which is why companies are calling in commercial collection agencies. The benefits are many:
• Company representatives avoid becoming embroiled in adversarial relations with customers that can deteriorate to the point of no return, literally
• Company representatives can use their time to nurture existing business and develop new clients instead of collecting debt
• Collection services are usually paid on performance, so they are not a drain on business cash flow
• The sooner collection is attempted, the more likely it is to yield results, so collection agencies should not be viewed as a last resort but rather as a normal business process
Immediate Relief
Businesses that need funds immediately may be able to sell their accounts receivables outright to debt purchasing agencies. In this case, businesses receive only pennies on the dollars owned to them, but they get their money right away and get to take the liability off their books. Debt purchasing companies make their money when they are able to collect more than what they paid for the accounts.
The decision to hire collection agencies or to sell debt is more about the need for cash than about the relationship with delinquent customers. Neither choice necessarily precludes sellers and buyers from doing business in the future.
The Fair Debt Collection Practices Act (FDCPA), the primary federal law regulating third-party collection agencies, protects consumers from unfair and abusive collection practices. This piece of legislation includes an intricate collection of dos and donts that small business must abide by in order to comply with federal guidelines. Running a business is complex enough, but understanding these rules can be more than a company can handle. Thats why collection agency services have become an integral part of operations. Small Business Brief writer Joel Walsh highlights a few of the critical aspects of the FDCPA worth mentioning:
• Forbidden Practices. Such as collecting more than the actual debt, pursuing debts in dispute, contacting the debtor during disputes or depositing post-dated checks
• Forbidden Communications. Such as posing as a government agency, sending non-legal forms, threatening arrest or posing to sue without the authority to do so
• Forbidden Disclosures. Such as giving incorrect credit-related information, sharing debt information with non-involved parties or contacting other parties more than once
Collection Agency Partnership: Empowering the Process
There are several key practices any small business can do that will help the business collection agency do their job better–activities that can grease the wheels of the collections process so that valuable resources arent wasted. Business Know-how writer Barbara Brabec reveals a few of them:
• Setting the Ground Rules. Explicitly outline the payment process, including what is expected of clients and customers
• Establishing a Contract. A formal statement showing payment expectations and consequences for non-payment
• Providing Positive Communication. This may include emails, phone calls, and hardcopy letters as reminders of pending payments
The bottom line is that the process of collections is precisely that–a process that proactively handles any situations that could hamper timely payment. After all, the reputation of the business and the customer is at stake.
Accounts Retrievable Systems: Why Use A Collection Agency
Many businesses struggle with customers that have trouble paying up. A commercial debt collector is sometimes the only thing that will save a business from going under.
Large landlords are notorious for having people unable to pay rent, and a commercial debt collector could save the landlord from bankruptcy.
Large Auto Dealerships have problems with people unable to pay monthly payments. Hiring a commercial debt collection agency could mean the difference between calling the sheriff on the customers, and calling for vacation plans.
Even banks require the occasional use of a debt collection agency. Loan officers find myriads of people unable to pay off loans. Instead of seizing goods and auctioning it off (a practice that often does not even come close to paying off the loan) the bank will hire a collection agency to secure the loan funds, and keep the bank running smoothly.
Another consideration might be the business relationship you currently have with the debtor and businesses related to the debtor’s business. For example, you might have had a very profitable and long-term relationship with the business with the overdue account up until now. Hiring a collection agency for this particular account might be a bit premature if you want to maintain a good relationship.
Maybe there’s a misunderstanding over the particular account between you and the debtor. You might be able to clear up this misunderstanding and get the debt collected. You should definitely try to ensure both you and the debtor understand the debt, the reason for the debt, and exactly how much they owe you before engaging the services of a collection agency. You’ll want this detailed information anyway, so you can provide it to the agency when they begin the collection process.
Likewise, you might not want to send a debt from a business to a collection agency without first considering how this action might affect your dealings with other businesses.
While this situation might be rare, you still want to consider these types of implications before hiring a collection agency.
Regardless of all of the considerations, you still need to keep in mind that timing is the most important factor in collections. With all things considered, hiring a collection agency sooner rather than later is always the best policy.
Article Source: blog.jmandw.com
A collection agency provides a service that is very useful to many businesses. Since most businesses today will give loyal customers some form of credit, it is vital to the business integrity that the customers pay the debts they owe. Sometimes, customers will simply stop paying their invoices, even if they are called by telephone or even paid a physical visit. It is because of customers like these that make a collection agency a necessary service. Sometimes a professional is needed just to get the smallest amount paid.
Since the entire purpose of the debt collection agency is to get people to pay their debts, they can get quite good at it. Some Debt Collectors are called percentage agencies. They will charge a percentage of the money collected, but they won’t charge anything if they are unsuccessful. Most percentage agencies charge rates from 33% to 50% of the debt collected.
Flat rate agencies will pay the business a flat rate in exchange for the debts, and then anything they collect from the customers will go straight into their pockets.
Some Commercial Debt Collection Agencies will be a hybrid of the two, and will have a smaller up front flat rate, and a smaller percentage of the paid debts. Then, everything else they collect goes to the business.
The last sort of collection agency will charge businesses by the hour. They are basically a contract call center, and they will let the business keep 100% of the earnings.
Your business depends on collecting the money it is owed. Unfortunately, those in debt are not in a position to readily pay you. What can you do if this happens to your business? Surely, ignoring the debt you are owed does not make for good business or a high number reflecting your gross revenue.
It is frustrating and time consuming for businesses to devote resources towards collecting their debts. For this reason, businesses look to outside collection services to perform the task for them.
Yes, the collection agencies do charge a fee on what they collect, but a company must consider if it is worth outsourcing to get some of their money rather than using their own in-house energies. Consider the following when making your decision.
How can collection agencies help my business?
Collection agencies make it their business to contact debtors, alert them of their debt, and urge them to pay. Depending on the time frame of delinquency, collection agencies will send letters, make phone calls, or threaten legal action.
Collection agencies have a reputation for harassing debtors to pay. This is not a reality or very likely considering they must comply with the federal Fair Debt Collection Practices Act.
Collection agencies focus on claiming your debt, so your company does not have to live with a loss and can focus on other areas of your business.
When can I use a collection agency?
Most businesses wait a time period of over sixty to ninety days until turning delinquent accounts over to a collection service, but this can be done as soon as thirty days expire. Once you transfer the account over to your collection agency, all of the communication to the debtor will be made through them.
Every instance with a debtor will be different. What time is the right time to turn them over? Consider it when they make grievances about paying, deny owing you money, do not make an effort to contact you, change their contact information without informing your company, etc.
All businesses want to make money. Revenue raised is used to pay employees, build the business, and pay existing debts. What if those owing you, are slow to pay? Their lack of efficiency creates chaos for your business.
To further exacerbate the situation, you must devote more time and resources to acquiring money that is owed to you. Don’t let that happen to you; your company’s time and resources are valuable and needed to make more money for your business.
If your business is owed money, then look into employing the services of a collection service. Collection agencies are experienced in getting money for others. Rather than spending the time on what could be a futile effort, let a trained collection company work for you.
Consider the following advantages in leveraging a collection agency.
A debt collection service is on your side
As aforementioned, competition is fierce enough without being distracted. A business competing for consumers cannot afford the time to chase after their debt. On the other hand, a serious business cannot afford to take a loss on previous goods/services provided.
Collection agencies are the answer to the problem. They will work with you in developing timelines and strategies to collect debt. Just as your company concentrates on your core business matters, collection services concentrate on collecting debt for other entities.
Why using a collection service is advantageous
Obviously, if debt becomes a problem with another entity, they are being too lax about the subject. In short, they do not view being in debt to you as seriously as you do. That is why it is good to bring in a collection agency. They are viewed as an outside source becoming involved. The word, ‘collections’ instills fear in those in debt.
If you attempted to get your money on your own, or with a less experienced collection agency, it may take some time. Why should you wait for your money? In addition, collection businesses have experience. They are trained to work with individuals in debt. They know exactly what tactics to use to get your money, and when desired, maintain your relationship with those in debt.
Choose a collection agency that is right for you
Not all collection companies are created equally. Look for a service provider that has experience working with a business your size and with accounts of your nature. It is a huge advantage to have good synergy with any outsourced business service.
Be sure to shop around and receive quotes from several collection agencies before settling on one. Talk to a representative from their company and exchange information. Get to know their company’s tactics and values, as well as divulging information about your business.
Think about what you save by outsourcing a collection agency
Using the services of a collection agency will serve doubly. Not only do they have the expertise to get money from those in debt, but they in are making you money by doing the work for you. Rather than spending your time away from your business addressing debt issues, they are allowing you to focus on the reason why you are in business – to make money.
Accounts Retrievable - Why Hire A Debt Collection Agency
Any company, large or small, that extends credit usually has some amount of receivables owed from slow paying or non-paying customers. The fact that not all customers pay, or pay on time, is reflected in balance sheets under the description bad debt or other receivables. Aging receivables can be managed internally or by outsourcing to commercial collection agencies. Here are five benefits businesses realize by opting to outsource to collection agencies:
Collect Sooner Rather than Not at All
The accounts receivables staff is often tasked with collecting aging receivables. These people usually have other responsibilities and may naturally put off doing collection work simply because it is not anyones favorite task. Since the longer a debt remains unpaid, the less likely it is ever to be collected, delay in collecting can be costly. Commercial collection agencies understand this principal and are motivated by their business models to collect sooner rather than later, recovering money that otherwise might be gone forever.
Maximize Revenue
In some companies, salespeople do not receive their full commissions until all monies are received from clients, thus forcing salespeople to spend at least some of their time working in an accounting function. Not only can this lead to confusion and deterioration of relations with clients, but the unfortunate outcome of this practice is that every minute spent collecting is a minute spent not generating future revenue.
Keep the Door Open for Additional Business from Existing Customers
Retaining existing customers is generally much less expensive than acquiring new ones. By hiring collection agencies, companies distance themselves from the role of bad cop when existing clients are reluctant to pay. The first notice from a collection agency may be enough to spur the customer into action while allowing the relationship between the parties to remain cordial or neutral.
Work with, not against, Prevailing Business Practices
One way companies manage cash flow is by holding payables as long as possible. Every company has a philosophy, if not an actual written policy, about when to pay their bills. Sometimes the philosophy dictates that bills are not paid until creditors demand payment in terms stronger than a monthly invoice. A letter or a call from a collection agency is often the trigger for a check to be released.
Save Money by Paying Only for Results
When receivables are significant, there may be a dedicated collections person who is paid a salary regardless of how much bad debt is recovered. Many commercial collection agencies are paid only when they collect, so companies using collection agencies can often save the expense of salaried employees.
Since banks review balance sheets when deciding to make loans or extend lines of credit, it is important to have as small an amount of old receivables as possible, while at the same time extending credit to new and existing customers to fuel growth. By implementing a policy of collecting early and regularly through neutral third party collection agencies, companies keep their customer relationships and their books healthy while improving their credit worthiness.
The term collection agency is usually applied to third-party agencies, called such because they were not a party to the original contract. The creditor assigns accounts directly to such an agency on a contingency-fee basis, which usually initially costs nothing to the creditor or merchant, except for the cost of communications. This however is dependent on the individual service level agreement (SLA) that exists between the creditor and the collection agency. The agency takes a percentage of debts successfully collected; sometimes known in the industry as the “Pot Fee” or potential fee upon successful collection. This does not necessarily have to be upon collection of the full balance; very often this fee must be paid by the creditor if they cancel collection efforts before the debt is collected. The collection agency makes money only if money is collected from the debtor (often known as a “No Collection – No Fee” basis). Depending on the type of debt, the age of the account and how many attempts have already been made to collect on it, the fee could range from 10% to 50% (though more typically the fee is 25% to 40%).
Some debt purchasers who purchase sizable portfolios will utilize a Master Servicer to assist in managing their portfolios (often ranging in thousands of files) across multiple collection agencies. Given the time-sensitive nature of these assets, many in the Accounts Receivable Management (ARM) industry believe there is a competitive advantage in utilizing this technique as it gives the debt purchaser more control and flexibility to maximize collections. Master Servicing fees may range from 4% to 6% of gross collections in addition to collection agency fees.
Some agencies offer a flat fee “pre-collection” or “soft collection” service. The service sends a series of increasingly urgent letters, usually ten days apart, instructing debtors to pay the amount owed directly to the creditor or risk a collection action and negative credit report. Depending on the terms of the SLA, these accounts may revert to “hard collection” status at the agency’s regular rates if the debtor does not respond.
In many countries there is legislation to limit harassment and practices deemed unfair, for example limiting the hours during which the agency may telephone the debtor, prohibiting communication of the debt to a third party, prohibiting false, deceptive or misleading representations, and prohibiting threats, as distinct from notice of planned and not illegal steps. . In the United States, consumer third-party agencies are subject to the federal Fair Debt Collection Practices Act of 1977 (FDCPA), is administered by the Federal Trade Commission or FTC.
In the United Kingdom third-party collection agencies that pursue debts regulated by the Consumer Credit Act must hold a Consumer Credit Licence and work within the framework of the 2003 fair debt collection guidance; licences are issued and regulated by the Office of Fair Trading.
Debt Collection Agency - Accounts Retrievable Systems
Giving money to a collection agency can feel like handing your lunch money over to a schoolyard bully. But it’s different when you legitimately owe what the collection agency is asking you to pay. Paying a debt collection is often painful because the product or service associated with the debt has long been consumed. If you’re debating on whether you should pay a collection you owe, here are 5 benefits of getting rid of those collections for good.
1. Stop collection calls for good.
As long as you have outstanding debt collections, you’ll probably be getting calls from debt collectors. A cease and desist letter may end calls from one particular debt collector. However, since collection accounts often change hands, you’ll keep being contacted about the debt until it’s taken care of.
2. Get approved for credit cards and loans.
Many banks won’t approve your credit card or loan application as long as you have outstanding collection accounts on your credit report. This means no mortgage, no car loan, and no American Express. Even employers won’t hire you for certain jobs if you have unpaid debts on your credit report. Paying the collection won’t remove it from your credit report, but a $0 balance is far better than one that’s still delinquent.
3. Improve your credit score.
As collections get older, they affect your credit score less. Of course, collection accounts will disappear from your credit report after seven years. As long as the accounts are still within the credit reporting time limit, a paid collection is better for your credit score than an unpaid one.
4. Eliminate the risk of being sued.
People assume that debt collectors won’t waste their time or money suing over a small collection. This assumption isn’t always true. As long as you have an outstanding collection that’s still within the statute of limitations, you run the risk of being sued for what you owe. A lawsuit could lead to a court judgment, a public record that will also tarnish your credit report for seven years. And if you still don’t pay up, the collector may get court permission to garnish your wages.
5. You’re closer to being debt-free.
Paying off a debt collection means there’s one less company you owe money to. You may feel like you’ve lost the battle if you pay a debt collection after resisting for months or years. In the long run, paying off a debt collection is better for your credit and your finances. Taking care of debt collections is a good thing, when you can afford to do it.
