Is outsourcing to debt collection agency a better alternative for your small business?
http://www.accountingfacts.net/articles/7549/1/Is-outsourcing-to-debt-collection-agency-a-better-alternative-for-your-small-business/Page1.html
Daljeet Sidhu
Daljeet Sidhu is co-founder at TradeSeam, the world's first Small Business Network and B2B Marketplace. Visit our B2B" title="http://www.tradeseam.com/smallbusiness/business-resources/view-resources\">B2B" target="_blank">http://www.tradeseam.com/smallbusiness/business-resources/view-resources">B2B marketplace to compare price quotes for goods and services for your business including price quotes from multiple Repossession services. By Daljeet Sidhu
Published on 07/30/2010
Are you a small business that has mounting unpaid invoices? Is your staff too occupied to call debtors? It may make sense to hire a debt collection agency. They can collect your unpaid bills and shore up your finances, all for a very affordable fees.
Is outsourcing to debt collection agency a better alternative for your small business?
Small and home-based businesses have to face the daunting task of collecting outstanding bills during their course of existence dealing with bad debts. Irrespective of the reasons behind the uncollected bill - real shortage of funds at the client's end or her being a habitual nonpayer, debts must and should be collected before business starts feeling the shortfall in funds. Business owners should have a sensible action plan to manage this problem effectively. Collection agencies are an effective choice for small and home businesses without the required staff and resources to collect overdue bills skillfully.
Occasional unpaid receivables can be accommodated in the balance sheet, but a number of such debts take a toll on the cash flow. If the value of the unpaid invoices is adequate to justify the cost of hiring a collection agency, it is your best shot at getting your money from defaulting customers.
Tips for hiring a collection agency
A debt collector will be dealing with your customers and it should conform to your policies and customer service principles. Clients will perceive the collection agency as a representative of your business and any impressions they form will impact your customer relationships. Therefore, you should evaluate a few significant points while deciding on a debt collection agency, such as:
* Experience working for similar business size and kind: Look for a collection agency that has worked with small and home-owned businesses and how they operate.
* Previous experience with collecting from similar businesses: A collection agency that has previous experience working with customers typically seen by businesses of your type and size has a better probability of succeeding. Individual defaulters and commercial debtors are very distinct and have to be dealt with differently.
* Skip tracing: Many times, debtors shift houses without informing businesses of their new address or get their phone lines disconnected. Collection agencies include professional skip tracing services - accessing numerous databases - to pin down the whereabouts of evasive customers and remind them of what they owe.
* Type of collection strategies: Run a check on the collection agency's approach towards collecting debts. If the agency has a good success rate from sending out letters to delinquent customers, appraise the correspondence yourself to ensure it complies with the Fair Debt Collection Practices Act. In doing so, you safeguard your customer relationships. Respectfully yet strongly worded communication can get customers to pay the debt and also carry on doing business with you.
* Errors and omission coverage: Collection agencies and servicing companies are sheltered from liability by the Errors and Omission insurance if disgruntled debtors 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 areas occupied by the customers. Or the agency and your business may have to face charges of unlawful collection without a license.
* Collection agency charges: Debt collection agencies charge 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 cases - fixed versus contingency, and select the one that falls more economical.
Though bad debts hurt all businesses, they can cause more damage to small and home businesses that do not have the necessary buffer to protect them in lean periods. Collection agencies are a rational choice as even after paying for their professional services, you end up with a sizable percentage of the collected amount.
Occasional unpaid receivables can be accommodated in the balance sheet, but a number of such debts take a toll on the cash flow. If the value of the unpaid invoices is adequate to justify the cost of hiring a collection agency, it is your best shot at getting your money from defaulting customers.
Tips for hiring a collection agency
A debt collector will be dealing with your customers and it should conform to your policies and customer service principles. Clients will perceive the collection agency as a representative of your business and any impressions they form will impact your customer relationships. Therefore, you should evaluate a few significant points while deciding on a debt collection agency, such as:
* Experience working for similar business size and kind: Look for a collection agency that has worked with small and home-owned businesses and how they operate.
* Previous experience with collecting from similar businesses: A collection agency that has previous experience working with customers typically seen by businesses of your type and size has a better probability of succeeding. Individual defaulters and commercial debtors are very distinct and have to be dealt with differently.
* Skip tracing: Many times, debtors shift houses without informing businesses of their new address or get their phone lines disconnected. Collection agencies include professional skip tracing services - accessing numerous databases - to pin down the whereabouts of evasive customers and remind them of what they owe.
* Type of collection strategies: Run a check on the collection agency's approach towards collecting debts. If the agency has a good success rate from sending out letters to delinquent customers, appraise the correspondence yourself to ensure it complies with the Fair Debt Collection Practices Act. In doing so, you safeguard your customer relationships. Respectfully yet strongly worded communication can get customers to pay the debt and also carry on doing business with you.
* Errors and omission coverage: Collection agencies and servicing companies are sheltered from liability by the Errors and Omission insurance if disgruntled debtors 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 areas occupied by the customers. Or the agency and your business may have to face charges of unlawful collection without a license.
* Collection agency charges: Debt collection agencies charge 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 cases - fixed versus contingency, and select the one that falls more economical.
Though bad debts hurt all businesses, they can cause more damage to small and home businesses that do not have the necessary buffer to protect them in lean periods. Collection agencies are a rational choice as even after paying for their professional services, you end up with a sizable percentage of the collected amount.