When to Hire a Collection Agency

Pop culture has created a pretty scary picture of collection agencies. When people think of collections they imagine someone harassing and threatening their customers. In reality, collection agents are trained professionals who are probably less-likely to insult or harass your clients than untrained people on your staff. A collection agency can help you solve payment issues quickly and professionally.

This is especially true if your business is too small to have staff dedicated to accounts receivable, credit management and in-house collecting. It simplydoes not make sense to have your small workforce trying to collect from people unwilling to pay. Because reputable collections agencies onlyget paid when you do, sending a bill to collections can actually save you money.

Don’t Delay

The longer a bill goes unpaid, the less likely you are to be able to collect on it. A study by the Commercial Law League of America shows that once an account is seven months past due, there’s only a 50% chance it will be collected on. Waiting to send an overdue account to collections clearly doesn’t pay.

If a client is about to declare bankruptcy, or is no longer responding to calls or emails, it is especially important to send the account to collections as soon as possible. Once a client has declared bankruptcy, a judge decides the order in which bills will be paid. Frequently, smaller creditors never receive payment from a bankrupt client. But, a collection agent may be able to negotiate at least a partial payment for you before the company goes into bankruptcy. A collection agent may also be able to find a client who appears to have gone missing.

Stop Unpaid Invoices Before They Happen

Most of the steps you can take to avoid sending a client to collections happen before you start doing business with the client. The first is to make sure you have clear payment terms and that you make it as easy for clients to pay as possible. Ideally, you will have legal help creating clear contract terms that make it hard for clients to argue against paying. There are many online resources for creating both contracts and credit applications that will help get you paid.

Having regular communication with clients, especially when they are late with their payment, makes it easier to know when there’s a problem.Your policy should be to send a politely worded note the day a bill is late. Sending late notices will help you sort out clients who cannot pay due to temporary issues such as a lost invoice from those who do not have the money to pay.

Set a Policy

Pick a date after which you automatically send clients to collections. Having a policy, such as “all accounts are sent to collections after 90 days” allows you to remove emotions from the situation and explain your decision to your customer.

Don’t let movies and TV shows fool you. Collection agents aren’t scary people who will threaten your clients. Sending an overdue account to collections is often the best and easiest way to get the most money out of the situation.