After an account has been past due for more than 60-90 days, sending additional reminder invoices or making in-house calls are hardly successful. If someone has not paid after 2-3 billing cycles, then they not pay you any time soon. At that point, engaging a Collections Agency is far more practical, economical and effective than continuing to pursue in-house recovery efforts.
Sterling Commerce found that the cost of paper-based invoices, on average is, $30 per invoice to process (once you include all in-house overheads). https://www.industryweek.com/blog/cost-paper-based-invoicingAccording to “David O. Willis” in his book “Business Basics for Dentists”: Estimates have put the total cost of sending a single bill at $16.00. |
Collection agencies take collection activity to a completely different level
For every account, they ensure:
• All federal and state regulations are followed.
• Ability to tackle every excuse that a debtor throws at them.
• Free Bankruptcy screening.
• Free Credit Bureau reporting.
• Free Change of Address Check
• Litigious defaulter check.
Let us compare in-house recovery costs with two primary services that a Collection Agency offers
a) Collection Letters:
In the collection letters service, all communication happens by sending written demand notices to the debtor (sometimes mixed with automated collection calls).
b) Collection Calls:
In the Collection Calls service, a professional debt collector personally calls the debtor several times.
In-house Invoices vs. Collection Agency Letters:
Do you think collection agencies make a lot of money by sending collection letters?
No, not much !! Collection letters have a razor-thin margin, therefore not all agencies offer this service.
Advantage #1
The cost of sending these demands are far lower when engaging a collection agency:
Based on various estimates, engaging your in-house staff to send a single invoice ranges between $16 to $30 when all costs are included.
All Costs? Factor in your in-house staff time & salary, stationery, 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 five contacts per account means you are looking at a minimum expense of $50 per account. In most cases, it will be much higher.
Any agency charging $20 or less for an account ( 1 account = 5 letter demands) is a great deal for you. In fact, the cost falls to almost $12 an account when a large batch of accounts are purchased.
# Advantage – 2
A collection agency sends five 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 cannot access any such scrub services; it will cost extra.
# Advantage – 3
The involvement of a Collection Agency puts more pressure on the debtor than when contacts are made by the in-house staff using your business name. The chances of getting paid become quite good.
# Advantage – 4
These are attorney-approved collection letters, not something your internal staff has made themself. They contain just the right balance of diplomatic verbiage and legal pressure.
In-house Reminder Calls vs Professional Collector Phone Calls
A professional debt collector whose entire day goes into talking to debtors has too many techniques and tricks to recover the debt than a typical in-house employee.
But, in-house collections have 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 demand is made.
Therefore it is best to transfer an account for the Collection Calls service when an account has remained unpaid for over 90 days or if it has already gone through the previous process of sending Collection Letters.
A debtor who has not paid you for 90 days will likely not pay you unless he hears from a professional debt collector.
Conclusion
Collection agencies have their own overheads, like licensing costs, insurance & bonding cost, staff salary, contractor commissions, costs of running website/software, performing scrubs and more.
Collection agencies can provide cheaper services due to their high volume. A professional collection agency has a far more efficient approach and a better strategy to recover money. Outsourcing collections also lowers your staffing cost and debt recovery training costs.
Therefore, let your collection agency handle what it is best at – Collections!
Some businesses do not feel comfortable sharing their customer data with an agency. However, most collection agencies have adequate safety and encryption procedures to protect your debtors’ data.
Bottom line, if an account has been over 30-120 days past due and your in-house calls/invoicing approach has not been able to recover the money, consider assigning that account to a collection agency before it gets too late. A collection agency can provide services starting from 1st party demands, switching 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, and small business owners from all across the board have been using collection agencies for decades now. This is a proven model for recovering past due accounts. Therefore one should not hesitate to hire a debt collection agency.