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subject: Is Outsourcing To Commercial Debt Collections A Better Choice For Small Business? [print this page]


Is Outsourcing To Commercial Debt Collections A Better Choice For Small Business?

Are you a small business that has soaring unpaid invoices? Do you not have sufficient staff to make collection calls? You may benefit if you hire a collection agency. They can collect your unpaid bills and shore up your finances, all for a very reasonable fees.

Small and home-based businesses have to face the daunting task of collecting outstanding bills during their course of existence dealing with unpaid receivables. Whether an uncollected bill is the result of genuine financial hardship at the client's end or her being a habitual defaulter, outstanding debts must and should be collected before business starts feeling the shortfall in funds. Business heads should have a sensible action plan to manage this problem effectively. Collection agencies are a good option for small and home businesses that do not have the necessary bandwidth and resources to collect bad debts skillfully.

While an infrequent unpaid receivable can be absorbed in the business operating costs, frequent occurrence of such unpaid invoices put pressure on the cash flow. If the worth of the unpaid invoices is substantial enough to justify the cost of hiring a collection agency, it is the best bet to get your money from defaulting clients.

Strategies for choosing a collection agency

A debt collection agency will be working for you and it should conform to your policies and customer service standards. As far as customers are concerned, the collection agency is an extension of your business and any opinions they form will definitely have some effect on your customer relationships. Therefore, you should evaluate some valuable points while deciding on a debt collection agency, such as:

* Experience working for similar business size and type: Shop around for a collection agency that has some experience with small and home-owned businesses and understands their way of operating.

* Previous experience with collecting from similar businesses: A collection agency that has handled customers often seen by businesses of your type and size has a better shot at succeeding. Individual debtors and commercial debtors are very distinct and have to be handled in their own way.

* Skip tracing: Many times, clients move without leaving a forwarding address or get their phone lines disconnected. Collection agencies include specialized skip tracing services - accessing numerous databases - to track down evasive customers and communicate with them over the unpaid invoice.

* Collection strategies followed: Run a check on the collection agency's collection strategies. If the agency has a good success rate from sending out letters to defaulters, peruse the correspondence yourself to ensure it does not violate the Fair Debt Collection Practices Act. In doing so, you protect your client relationships. Respectfully yet strongly worded letter can get clients to pay the debt and also carry on doing business with you.

* Errors and omission insurance: Collection agencies and hiring businesses are sheltered from liability by the Errors and Omission insurance if displeased non-payers go to court over the strategies employed to collect the debt.

* Licensing issues: The collection agency should have the legal right to collect debts in locations inhabited by the debtors. Otherwise, the collection agency and your business can be charged for unlawful collection without a license.

* Collection agency rates: Collection agencies offer two pricing options - set charge or contingency rates. The contingency rate is a portion of the total outstanding amount collected. You should verify the collection agency's success rate and contingency rate before finalizing the pricing option. Calculate the cost of service in both scenarios - fixed versus contingency, and select the one that works best for you.

Bad debts weigh down every business but they can endanger the existence of small and home businesses that do not have the necessary buffer to keep them going when strapped for cash. Collection agencies are a viable choice as even after deducting their fees, you end up receiving more than what you would if you pursued the debtors yourself.

by: Daljeet Sidhu.




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