Is your organization constantly losing money to accounts receivable because money owed on past-due accounts remain uncollected despite following all the company policies and recommended procedures.
Did you notice, 90% of the accounts which become over 90 days past-due never get resolved. These 90% accounts are subsequently written off as a complete-loss in your accounting books.
Furthermore, chasing customers to clear their accounts receivable is eating away too much time of your team and taking them away from the core business activities for which they were hired for?
It is extremely common for organizations to focus on getting new customers and largely ignoring accounts receivable.
May a times companies do not even realize that they often land up spending “more money” trying to collect an outstanding debt than the value of that account. This includes lost time of an employee, resources, and so 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, just like yours which are unable to collect money from a those hard customers.
But engaging an outside organization for debt collection requires approval from the upper management, CEO or the business owner.
We at NexaCollect, have prepared a short list of “Frequently Asked Questions” that will help you answer “Why should we hire a Collections Agency?”.
1. Expense Involved?
>> Accounts can be submitted for contingency collections, therefore there are no upfront costs. Collection agency returns the 60% of the money recovered, and keeps 40%.
For commercial collections (B2B), contingency rates are lower. Collection agencies also offer Written Demands service, in case you hardly follow up on your past-due accounts yourself.
2. What accounts will we transfer to them?
>> Only accounts which have not paid for 90 days will be transferred. Probability of recovering money in-house on these accounts is extremely low.
3. Financial benefit to the company:
>> Currently 90% of these accounts that are over 90 days past-due are written-off as a loss. In-fact the effort and cost involved to follow up on all accounts over 90 days off-sets the recovery made on them, as only 10% of the accounts pay up. In short, 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 to the company.
4. Would we need to hire more people to follow up with a collection agency?
>> Not at all, in-fact employees start having more time. You will need only 1-2 existing employees to spend just 15-30 minutes a day to submit past due accounts on the collections agency website. Employees will have more time in hand as they won’t have to waste time on these hard to collect accounts. Employees will be able to focus on core tasks for which they were hired for, and reduce their stress of doing debt collections. ( Who likes to do debt collections ?). It will also alleviate the pressures on your billing department.
5. Why can’t we do the same thing internally?
>> Collection agencies have advance tools that assist in collecting money from hard to collect accounts. They also do Skip Tracing to locate missing debtors. They also perform Bankruptcy check and several other checks that assist in recovering money. Doing debt collections is their job, every single work day. They do it more efficiently and effectively. They are also aware of the ever changing Federal laws involved in debt collection.
6. Is there any security risk?
>> Accounts are submitted using a secure website. Agency will additionally provide security certifications that will ensure that the data is handled securely. Collection agencies are licenced, bonded, insured and perform collections in a diplomatic manner. This greatly reduces the company’s own risk against potential lawsuits.
7. 40% contingency rate, can we look for a more cheaper agency?
>> All “good” collection agencies charge between 40%-50%. Therefore 40% is already a good contingency rate. Moreover if your average balance is over $1000, the contingency rate can be lowered to around 35%. It is more important to hire a collection agency with better returns, rather than going for the cheapest whose returns will likely be pathetic. Remember the old saying – “You get what you pay for”. Collection agencies do not work on huge margins, they primarily make money due to the high volume of accounts they work on.
8. How long will it take to set up?
>> Just 1 business day after the contract with the agency is signed, another 2-3 days to train in-house employees to get use to the process. Overall, you will be up and running in less than a week.
9. What is the hurry?
>> The probability of collecting from older accounts reduces significantly over time. Collectiblity falls about 10% every month. By waiting company is only losing money.
10. Would it upset our customers?
>> The Fair Debt Collection Practices Act (FDCPA) is the main 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. Their collection is attempted in a way to preserve relationships.
11. Why would a client pay a collection agency, verses when we ask them to pay us directly?
>> That’s indeed a fact. People are a lot more fearful/concerned when a collection agency is involved verses when the collections are performed under own name. They know that a collection agency will not back off easily. For reasons beyond the scope of this article, people indeed pay collection agencies if they can.
12. Which agency should you select .. Local or with a National Presence?
>> Location of a collection agency does not matter, but they should be licenced to collect in your state and placed where your debtors reside. Fill our “Contact us” and we will make this process very easy for you.