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hiring collection agency reduce receivables

After launching a new business, the first goal is to gain new customers to generate revenue.  Most businesses focus on marketing and providing excellent customer service to spur growth during the early stages of the company.

Any business that offers products or services on credit runs the risk of customers falling past due.  Small companies often don’t have a strategic management plan for delinquent customers and will simply give up and write off the account as a loss.

Many small businesses also find attempts at collecting from past due customers uncomfortable and time consuming.

The alternative is to outsource this task to a collection agency who will attempt to collect on a company’s behalf with zero upfront cost.

4 Things to Look for When Hiring a Collection Agency

Finding a collection agency can be challenging as most do not actively market the services they offer.  Below are a few simple tips to help hire an effective collection agency.

1 - Agency Reputation

While the debt collection industry has many honest agencies; they are occasionally a few fly-by-night agencies that try to cut corners and are only out for a quick buck.  Make sure the agency you speak with has been in business for several years and ask for references from clients they have represented from within your industry.

Read reviews on websites such as Google and Yelp.  Most established collection agencies will have enough online reviews to give you a good idea of how they operate.

2 - Industry Expertise

Collecting a debt may seem simple but each industry presents specific challenges and many collection agencies will have certain niche industries they focus on.  If a collection agency works mostly with dental offices, then someone who runs a HVAC company may not see great results by using that agency.

After all, collecting from someone who had an air conditioner repaired is much different than someone who received a root canal. 

3 - Collection Cost

Some collection companies will charge upfront fees before attempting to collect on a debt.  For example, they will ask for a $25 fee for each account places which can add up fast if a business has several delinquent accounts on the books. 

Most small business collection agencies will work on what is called a contingency rate.  This means no upfront fees are charged and they only keep a percentage of any money recovered.  Contingency collections are strongly advised as the last thing a business wants to do is invest more money into attempting to collect from customers who have been refusing to pay.

Depending on the industry and age of the debt, most contingency rates will fall between 20%-50%.  Older debts will receive in a higher contingency rate due to a lower chance of recovering a very old debt compared to one only a few months past due.

4 - Licensing

Many states require collection agencies to be licensed before they can legally collect within a state.  These fees can be quite expensive which will lead some agencies to attempt to collect debts without proper licensing.  The debt collection industry is heavily regulated which means you can easily confirm if the agency is licensed within the state you operate and where the debtor resides before hiring them.

Do not risk hiring an agency that isn’t licensed as the risk is too large and they are simply too many collection agencies who are licensed who will gladly take on a new business.

Additional Benefits of Using Collection Agencies

After hiring an agency, the benefits become more noticeable beyond increased cash flow.  Working with a collection agency will help companies develop a set plan on when to turn over past due accounts in the future and will streamline the process, making it much more efficient.

Collection agencies also help with retaining customers who were previously past due and not currently using the business.  When a customer is past due then businesses will rightfully refuse to extend more credit which hurts sales and growth of the business.  If a collection agency gets a customer to pay in full then the business can feel good about working with the customer in the future.

Debt collections can be an uncomfortable and stressful task for in-house employees who have never attempted to collect a debt before.  It can also become a frustrating and time-consuming task as numerous attempts to reach the debtor goes unanswered. 

By hiring a third-party collection agency, a business can allow employees to focus on actions that grow the business while the collection agency goes to work on recovering the money owed.

Growing a business to become profitable can be challenging enough as you struggle with online marketing and knowing when to bring on new employees. The last thing a growing business needs is late paying customers slowing down the progress that is being made. 

Hopefully the tips above will help your small business hire a great collection agency that can collect all the money owed.

Our guest author Luke McCann has worked in the debt collection industry for 15 years and currently runs CollectionAgencyMatch.com.

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