Collecting your business debts from delinquent clients can be a daunting task. The problem often worsens when some of your customers move without giving you a forwarding address. In such instances, hiring a debt collector to recover your accounts receivable amounts becomes necessary. Debt collection agencies make account receivable collections and they get paid a percentage of the outstanding funds, which they recover.
When should you hire an accounts receivable management collection agency?
A standard account receivable collections agency provides services, which may include skip tracing, formal demand letters delivery, e-mailing, litigation, calling, and online portal access. Generally, the chances of you recouping an overdue debt decline as more time passes. Many companies forward past-due accounts to debt collectors when the account receivable amounts are between 90 to 120 days past due date. If you wait for more than this period you’re less likely to recover your debt.
What should you look for when choosing a provider of debt collection and recovery services?
If you’ve exhausted all your debt collection options and you’re not getting anywhere, it’s prudent to hire a collection agency that will deal with your delinquent customers. Debt collection should be done according to the Fair Debt Collection Practices Act (FDCPA). As such, you should try to select an agency that is reputable and able to adhere to the laws and regulations of debt collection.
Here are the crucial factors to consider:
Does the agency specialize in your area of business or fit your needs?
There are numerous debt collection agencies to choose from in the U.S. For instance, there were 8,513 debt recovery agencies in 2017. These agencies specialize in different areas of debt collection. Some handle consumer cases (B-2-C) while others collect business-to-business (B-2-B) commercial debts. Some agencies dealing in account receivable collections specialize in certain jurisdictions or industries such as auto loans, mortgages, insurance, healthcare or some deal with different industries. Therefore, choose a collection agency that best suits your industry and needs.
Is your prospective agency reputable and reliable?
The fastest way to determine whether an agency is reputable is by asking your referrals. You could talk to your accountant, attorney, or a business associate. Ask whether the prospective agency adheres to laws or whether it has a high success rate in debt collection. You could also search in the Association of Credit and Collection Professionals (A.C.A) records to determine whether the agency you’re about to choose is bonded and/or licensed.
Does your considered agency adhere to FDCPA?
Hiring a debt collection agency that uses dubious means to collect debts may damage your company’s reputation and even lead to litigation and losses. It’s prudent to hire a collector that abides by the precepts of FDCPA regulations and avoids violations of the act. For instance, collectors aren’t supposed to threaten or harm debtors or call them during inconvenient times.
Does your considered agency have proper licensure and certification?
Most states require collection agencies to be bonded and/or licensed. Certification by other relevant bodies such as the Commercial Collection Agency Association (C.C.A.A) and Commercial Law League of America (C.L.L.A) as well as membership to A.C.A International are indicators of a compliant collection agency that is highly likely to be ethical.
What’s the agencies debt collection fee structure?
A collection agency charges for their services based on the age of the account receivable collections account, the type of collection work involved, and the size of the debt portfolio among others. Therefore, make careful consideration and find the agency that offers you the best rates based on your kind of debt. Also check the contingency fee, which is a percentage of the collected amount that is charged by collectors. This is a negotiable fee and you should always go for the agency that grants the lowest percentage. Some agencies require an upfront fixed fee payment, but some don’t. Always go for those that don’t ask for a fixed fee if all other terms and conditions look favorable.
Choose wisely and you may just get an agency that will perfectly reduce your account receivable collections and reduce your overdue debts.