Does your small business have mounting unpaid invoices? Do you not have enough staff to make collection calls? It may be time to hire a debt collection agency. For a very affordable fee, they can collect your bad debts and prop up your finances.
Small and home-based businesses have to face the hard job of collecting outstanding bills at some time or the other dealing with unpaid receivables. Irrespective of the reasons behind the uncollected debt legitimate financial hardship at the client’s end or her being a habitual nonpayer, overdue amounts must and should be collected before business starts feeling the shortfall in funds. Business owners need to consider an effective action plan to manage this problem effectively. Collection agencies are a viable option for small and home businesses that do not have the required bandwidth and resources to collect overdue bills skillfully.
While a sporadic unpaid debt can be adjusted in the business expenses, too many unpaid bills put pressure on the revenue stream. If the total cost of the unpaid invoices is adequate to justify the cost of contracting out a collection agency, it is your best shot at getting your money from defaulting customers.
Tips for choosing a commercial collections agency
A collection agency will be dealing with your clientele and it should respect your policies and customer service values. Clients will perceive the collection agency as an extension of your business and their experience with the agency will effect your customer relationships. Therefore, you should evaluate some important points while picking out a collection agency, such as:
Experience working for similar business size and type: Shop around for a collection agency that is familiar with small and home-owned businesses and how they operate.
Previous experience with collecting from similar businesses: A collection agency that has handled customers often seen by businesses of your size and type has a better shot at succeeding. Individual defaulters and business defaulters are totally different and have to be handled in their own way.
Skip tracing: Sometimes, clients move without informing businesses of their new address or have their phone lines disconnected. Collection agencies include specialized skip tracing services – accessing multiple databases to track down debtors and remind them of the unpaid invoice.
Collection strategies followed: Run a check on the collection agency’s collection strategies. If the agency has achieved reasonable success by sending out letters to defaulters, review them yourself to ensure it does not violate the Fair Debt Collection Practices Act. In doing so, you safeguard your client relationships. Respectfully yet strongly scripted communication can get customers to pay the debt and also carry on doing business with you.
Errors and omission insurance: Collection agencies and hiring companies are protected from liability by the Errors and Omission insurance if upset non-payers go to court over the strategies used to collect the debt.
Licensing issues: The collection agency should have the legal right to practice debt collection in areas occupied by the debtors. Otherwise, the collection agency and business being serviced can be charged for unlawful collection without a license.
Collection agency rates: Debt collection agencies charge set charge or contingency rates. The contingency rate is a fraction of the total unpaid sum collected. You should verify the collection agency’s success rate and contingency rate before deciding on the pricing option. Assess what each option will cost you in both cases – fixed versus contingency, and select the one that falls more economical.
Bad debts weigh down every business but they can cause more damage to small and home businesses that do not have the necessary resources to protect them when strapped for cash. Collection agencies are a rational choice as even after paying for their professional services, you end up getting more than what you would if you pursued the bad debts yourself. Daljeet Sidhu is the author of this article.
Source:http://kingroyasia.com/177/is-outsourcing-debt-collection-a-better-choice-for-your-small-business/