The Article Library

Small and home-based businesses cannot escape the probability of dealing with unpaid receivables. Whether an uncollected debt is the result of authentic scarcity of funds at the customer’s end or her being a habitual defaulter, debts need to be collected on priority to avert loss to business. Business heads should have a sensible action plan to manage this problem effectively. Collection agencies are a viable option for small and home businesses without the required bandwidth and resources to collect outstanding invoices proficiently.

While a sporadic unpaid receivable can be adjusted in the business operating expenses, too many of such debts put pressure on the cash flow. If the total cost of the unpaid invoices is substantial enough to justify the cost of contracting out a collection agency, it is your best shot at getting your money from defaulting customers.

Strategies for choosing a collection agency

A debt collector will be working for you and it should respect your policies and customer service standards. The way clients see it, the collection agency is an extension of your business and any impressions they form will impact your customer relationships. Therefore, you should evaluate a few important points while picking out a collection agency, such as:

* Familiarity working for similar business size and type: Look for a collection agency that has worked with small and home-owned businesses and how they operate.

* Experience with collecting from similar businesses: A collection agency that has handled customers often seen by businesses of your size and type has a better probability of succeeding. Individual defaulters and business debtors are completely different and need dedicated handling.

* Skip tracing: Sometimes, customers shift houses without leaving a forwarding address or get their phone lines disconnected. Collection agencies include professional skip tracing services – accessing numerous databases – to pin down the whereabouts of evasive customers and remind them of what they owe.

* Collection tactics followed: Verify the collection agency’s collection tactics. If the agency has a good success rate from sending out letters to debtors, peruse them yourself to ensure it complies with the Fair Debt Collection Practices Act. In doing so, you safeguard your client relationships. Respectfully yet resolutely worded letter can get customers to pay the debt and also carry on doing business with you.

* Errors and omission coverage: Collection agencies and hiring businesses are insured from liability by the Errors and Omission insurance if disgruntled debtors go to court over the tactics employed to collect the debt.

* Licensing issues: The collection agency should have the legal right to collect debts in locations occupied by the debtors. Or the agency and your business may have to face charges of unlawful collection without a license.

* Collection agency charges: Debt collection agencies offer two pricing options – fixed fees or contingency rates. The contingency rate is a percentage of the total debts collected. It is recommended that you do some math with the collection agency’s success rate and contingency rate before picking the pricing option. Calculate the charges in both scenarios – fixed versus contingency, and select the one that falls more economical.

Bad debts weigh down every business but they can cause more damage to home and small businesses that do not have the necessary resources to keep them going when strapped for cash. Collection agencies are a rational choice as even after deducting their fees, you end up getting a sizable percentage of the collected amount.

Daljeet Sidhu. Read Collection Agencies advice. Compare Commercial collections quotes. Buy leads.