After an account has been 30-60 days past due and sending reminder invoices or in-house calls have essentially failed, at that point engaging a Collections Agency is far more economical and effective than continuing to pursue in-house collections .
Let us compare in-house collections and with two main services that are offered by a Collection Agency
a) Collection Letters:
In collection letters service all communication happens by sending written demand notices ( sometimes mixed with automated collection calls).
b) Collection Calls:
In Collection Calls service a “human” debt collector personally calls the debtor.
In-house Invoices vs Collection Agency Letters:
Do you think that collection agencies make a lot of money by sending collection letters?
No, not much !! Collection letters are sent on a razor thin margin.
Advantage #1
Cost per contact of an account is a lot more cheaper when engaging a collection agency:
Do you know that based on various estimates, engaging your in-house staff to send a single invoice is between $16 to $30, when all costs are included.
Factor in your in-house staff time & salary, stationary, printing, mailing, equipment, utility costs, errors, software, office space, etc. Yes these costs add up quickly, just that we do not realize it. Even if your in-house staff is ultra-efficient, still sending 5 contacts per account, means you are looking at a minimum of $50 expense per account. In most cases it will be much higher.
| Sterling Commerce found that the cost of paper based invoice, on average, $30 per invoice to process. https://www.industryweek.com/blog/cost-paper-based-invoicing According to “David O. Willis” in his book “Business Basics for Dentists”: Estimates have have put the total cost of sending a single bill at $16.00. |
Any agency which is charging $20 or less for an account ( 1 account = 5 letters) is a great deal for you. In-fact the cost falls to almost $12 an account when large number of accounts are purchased.
# Advantage – 2
A collection agency sends 5 contacts on your behalf, it will also include Scrubs like “Change of Address” and “Bankruptcy Scrub”, which your internal staff will not do. Your employees do not have access to any such scrub services.
# Advantage – 3
Involvement of a Collection Agency puts more pressure on the debtor, compared to when contacts are made by the in-house staff using your business name. The likelihood of a getting paid suddenly goes a lot higher.
# Advantage – 4
These are attorney approved collection letters, not something your internal staff has made it up. They contain just the right balance of pressure and legal verbiage.
In-house Reminder Calls vs. Professional Collector Phone Calls
A professional debt collector whose entire day goes in talking to debtors has too many techniques and tricks to recover debt than a typical in-house employee.
But, in-house collections has a unique advantage – An in-house employee can request the debtor to make payment by calling them just after the payment is due, however a debt collector must give a 30 day dispute period to an individual debtor after the first contact is made.
Therefore it is best to transfer an account for the Collection Calls service when an account has not been settled for 120 days or if an account has already gone through the previous process of sending Collection Letters.
A debtor who has not paid you for 120 days, he will likely not pay you unless he hears from a professional debt collector.
Conclusion
Collection agencies have their own overheads, like licencing costs, insurance & bonding cost, their own employees salary, contractor commissions, cost of running website/software, performing scrubs and more. But their cost per account is lowered due to the higher volume.
Collection agencies are able to provide cheaper service due to their high volume. A professional collection agency has a more efficient approach and a better strategy to recover money. This also lowers your cost of staffing or training your in-house business associates for debt recovery.
Therefore, let your collection agency handle what it is best at .. Collections!
Some business do not feel comfortable sharing their customer data to an agency. However, most collection agencies have adequate procedures in place to keep the debtors data safe.
Bottom line, if an account is between 30-120 days past due and your own in-house calls/invoicing approach has not been able to recover money, consider assigning that account to a collection agency before it gets too hard to get your money back entirely. A collection agency can provide services starting from 1st party demands, then switching over to 3rd party demands and finally making collection calls. They will even file a Legal Suit if needed.
Banks, credit card companies, car dealerships, doctors, gyms, US government, small business owners from all across the board have been using collection agencies for decades now. This is a proven model for recovering on past due accounts, therefore one should not hesitate to hire a debt collection agency.