When Is It Too Costly To Collect Debt
When is it too costly to pursue an old outstanding debt
? Is the amount outstanding worth referring to a debt collection service instead? It is crucial to understand that there may be a point in time where the time you are spending compared to the size of the debt and the likelihood of recovery do not weigh up. That is, there may be a time where it is not commercial to continue pursuing the debt.
When do you determine that the cost of recovery of the debt is too high? These factors may help you in answering this question.
Remember your time is also money. This is one consideration that many overlook when chasing debt. They may include the obvious such as phone calls, postage and stationery or even wages of staff but the fact they are spending time can be counterproductive depending on the size of the debt and the likelihood of recovery. This time could be better spend focusing on core business and generating other sales.
Calculate and set a minimum amount required for collection. This will ensure you know ahead of time which debts you consider worthy of chasing. A collection policy should be part of your good business practices. Tally up all the costs involved in chasing one outstanding account. Include staff. postage, stationery and even printing costs. Think about how many phone calls have been made and if you have hand delivered any correspondence take the vehicle running costs into account as well. This can represent the minimum you will follow up.
Know when it's time to seek advice from
debt collection agencies. Agencies deal with bad debts every day and know the best ways to chase debt. They may have instant results where you have failed in the past and can negotiate terms with the customer if this is an option. Many businesses refer any debt over 30/60/90 days to a debt collection agency for recovery. This allows them to focus on core business.
Be commercial - never throw good money after bad and know when to cut your losses. Remember that you are in business to make money. If this isn't happening because of bad debts ageing faster than you are it may be time to look seriously at your collection methods.
Many debt collection agencies work on a 'no collection no fee' basis. Therefore, there is no downside in referring outstanding debt to such agencies. You will not pay unless they recover. This can save you substantial time and money in the future and also helps to maximise cash flow of the business.
by: John Zukerman
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