Is your company constantly losing money due to overdue accounts receivable? Several delinquent accounts have remained uncollectable despite your best efforts or even when you followed all your company-recommended procedures and policies.
Did you notice that 90% of the accounts which become over 90 days past due never get resolved?
Unless forwarded to a professional collection company, these accounts are subsequently written off as a complete loss.
Furthermore, chasing customers to clear their bills wastes too much time. This keeps your team members away from the core business responsibilities they were hired for.
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Why should your company hire a professional collection agency?
We have prepared a list of “Frequently Asked Questions” that will help you genuinely address your concerns and also help you design a strong case for your company’s senior management.
1. What is the expense involved in hiring a collection agency?
>> None – Accounts can be submitted for contingency collections. Therefore there are no upfront costs. A collection agency returns 60% of the money recovered and keeps 40%. Many collection agencies offer flat-fee services too, starting at $15 per account.
For commercial collections (B2B), contingency rates are lower. Collection agencies also offer first-party pre-collection services if your staff hardly gets time to follow up on delinquent accounts.
2. Which accounts would you transfer for collections?
>> Only those accounts that have not paid for more than 60 days should be transferred. In other words, you have given them at least two billing cycles to pay directly to you.
3. Any other financial benefit to the company?
>> Many. Almost 90% of these accounts over 90 days past due are written off as a loss. The effort and cost involved in following up offsets the recovery made on them. In short, our company is not gaining anything by following up on accounts over 90 days.
On the other hand, money recovered by a collection agency will be 100% profit for the company.
4. Would you need more people to follow up with a collection agency?
>> Not at all. Employees will have more time in hand as they won’t have to waste time on these hard-to-collect accounts. Only 1-2 existing employees would spend 15-30 minutes daily submitting past-due accounts on the collections agency website.
In-house employees hate doing debt collections anyway. It will also alleviate the pressures on your billing department.
5. Why can’t you do the same thing internally?
>> No, you cannot replicate what professional collection agencies can do. Collection agencies have advanced tools that assist in collecting money from hard-to-collect accounts.
They do Skip Tracing to locate missing debtors.
They also perform Bankruptcy checks and several other checks that assist in recovering money.
They do debt collections every day and can handle collections efficiently and effectively.
Collection agencies are also aware of the ever-changing Federal and local laws involved in debt collection.
6. Is there any security risk if you hire a collection agency?
>> Accounts are submitted using a secure website.
The agency will additionally provide security certifications to ensure the data is handled securely. Collection agencies are licensed, bonded, insured, and diplomatically perform collections. This dramatically reduces the company’s own risk against potential lawsuits.
7. 40% contingency fee. Should you look for a cheaper agency?
>> 40% is a reasonable fee in the collections industry. All “good” collection agencies charge between 40%-50%. Moreover, if your average balance is over $1000, the contingency rate can be lowered to around 35%. Hiring a collection agency with better returns is more important than going for the cheapest. Lower-cost agencies do not spend enough time and tools required for higher returns.
8. How long will it take to set up?
>> Just one business day after the contract with the agency is signed, another 1-2 days to train in-house employees to get used to the process. You will be up and running in less than 3-4 days.
9. Why should you move fast?
>> The success rate of collecting from older accounts reduces significantly over time. The probability of collecting money falls about 10% every month. By waiting, our company is only losing money.
10. Would it upset our customers?
>> Chances are low. The Fair Debt Collection Practices Act (FDCPA) is the primary federal law that governs debt collection practices. The FDCPA prohibits debt collection companies from using abusive, unfair, or deceptive practices to collect debts from debtors. All collection efforts are made diplomatically with the intent to preserve relationships.
A collection agency will also try to build a positive relationship with your customer, which will help prevent non-payment issues from reoccurring in the future.
11. Why would a client pay a collection agency versus when you ask them to pay you directly?
>> That’s indeed a fact. People are much more fearful/concerned when a collection agency is involved. They know that a collection agency will not back off quickly. For reasons beyond the scope of this article, a simple fact is that people indeed dig their pockets deeper to pay off a collection agency.
12. Which agency should you select? With Local or National presence?
>> The location of a collection agency does not matter, but they should be licensed in your state and where your debtors reside. A collection agency with a nationwide presence should be preferred. If a debtor crosses state lines, you won’t have to look for a new agency to pursue that debt.
13. Do they keep your money collected in a Trust Account:
Always select a collection company that deposits all money collected for creditors in a separate bank Trust Account.
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Conclusion:
Companies do not even realize that they often spend “more money” trying to collect. This is primarily due to the lost time of employees, resources, and many other hidden costs.
If you feel transferring an account to a professional debt collection agency after 60-90 days is cost-effective for your organization, you are 100% right. Collection agencies have been around for decades, and every year they recover billions of dollars for organizations like yours, which cannot collect money from those hard-to-deal-with customers.
It is common for organizations to focus only on getting new customers and mostly ignore their past-due accounts. Engaging an outside organization for debt collection requires approval from upper management, CEO, CFO, or business owner. The concept of transferring accounts to a collection company is prevalent. Even Fortune 500 companies hire a collection agency.