At some point, nearly all businesses will face delinquent accounts. While it’s smart to initially attempt collection on your own, there’s only so much work you should do. Trying to collect a bad debt is draining on your time and your resources. Eventually, it makes sense to pass the task on to a professional debt collection company.
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If you’re in this situation, you may be wondering how to proceed. If you’ve never sent debt to collections before, the process may seem daunting. But it doesn’t have to be. This article will give you the information you need to be successful.
Look For Collection Agencies With Relevant Experience
As you begin your search, keep in mind that not all collection agencies are equal. It’s helpful to find an agency with experience in your industry. They will be better prepared to handle the specific cases your business faces.
Agencies often specialize as well. If you’re a small business it’s better to locate a company that handles organizations of your size as opposed to one that focuses on midsized or larger companies.
The closer an agency’s experience aligns with your particulars, the more successful they’re likely to be with your accounts.
Balance Fees With Recovery Rates
Some agencies will charge a flat fee for their service, though most operate on a contingency basis. If they don’t collect anything on an account, the service doesn’t cost you anything. Otherwise, they keep a percentage of the original invoice amount, usually between 25% and 40%. Find out which scheme each agency you’re considering uses.
While it might be tempting to choose the agency that takes the smallest percentage, first ask them about their recovery rates within your industry. It’s worth paying more per collected invoice if the company you choose is likely to succeed with more of them.
Check The Agency’s Credentials
Most collection agencies work to maintain proper standards, but some are better than others. Ensure the ones you’re considering are properly licensed according to your state’s licensing rules and follow the guidelines of the Fair Debt Collection Practices Act.
Ask them for references and Google the company for online ratings and reviews. It’s also wise to check with the Better Business Bureau to see if their customers are satisfied with the service they received.
Ask Them About Security Protocols
When you send a debt to collections, you’re passing on sensitive customer information to a third party. It’s essential to make sure you aren’t putting your customers at risk.
Ask each agency to detail the security measures they use to guarantee your debtors’ data can’t be breached. If they can’t be specific about their security protocols or outsource their collection efforts to foreign countries you may want to consider working with someone else.
Some agencies offer a secure, online portal for submitting accounts and getting updates and performance reports on existing collections. This can be quite helpful, but the agency needs to offer assurances that the service is safe.
Ask About Their Collection Practices
Even though the agency is an independent company, your customer will likely tie their behavior to you. So make sure you’re comfortable with the way they handle collections. Good agencies can collect on debts without using aggressive or threatening tactics. Consider how you’d like your customers treated and then see if the agency your considering can work within those parameters.
Also, ask them if they have skiptracing capabilities. This technique leverages multiple cross-referenced databases to find debtors that have “skipped” town to avoid collection. It’s useful for maximizing collection success, so be sure it’s available.
Additional practices that to have at your disposal are credit reporting and legal collections.
Make Sure They Carry Adequate Insurance
If one of your customers feels they’ve been mistreated by the agency you hire to collect their debt, they can sue. The agency should have insurance against this. Otherwise, they may look to try and pass on some of those costs to you.
Read your contract carefully to see how you might be liable. In reality, you shouldn’t be liable at all, but an ounce of prevention is worth a pound of cure.
Once you’ve found a few agencies that tick all of the boxes above, consider a trial run. Give each a portion of your outstanding accounts. The one that nets you the highest total recovery in a given period could handle all of your collections from that point forward.