Is Outsourcing To Commercial Debt Collections A Superior Alternative For Small Business?

Small and home-based businesses cannot escape the probability of dealing with unpaid receivables

. Whether an uncollected debt is the outcome of legitimate financial hardship at the customer's end or her being a customary defaulter, outstanding debts need to be collected on priority to avoid loss to business. Business heads need to chalk out a sensible action plan to deal with these eventualities effectively. Collection agencies are a good choice for small and home businesses that do not have the required staff and resources to collect outstanding invoices skillfully.

While an occasional unpaid debt can be adjusted in the business expenses, too many of such unpaid invoices take a toll on the cash flow. If the total cost of the bad debts is adequate to justify the price of hiring a collection agency, it is the best bet to get your money from defaulting clients.

Tips for hiring a collection agency

A debt collection agency works on your behalf and it should respect your policies and customer service standards. Customers will perceive the collection agency as a representative of your business and their experience with the agency will definitely have some effect on your relationship with the customer. Therefore, you need to look at some key points while deciding on a debt collection agency, such as:

* Familiarity working for similar business size and kind: Look for a collection agency that has worked with small and home-owned businesses and understands their way of operating.

* Experience with collecting from similar businesses: A collection agency that has handled customers typically seen by businesses of your type and size has a better probability of succeeding. Individual non-payers and corporate debtors are totally different and have to be dealt with in their own way.

* Skip tracing: Many times, clients shift houses without leaving a forwarding address or have their phone lines disconnected. Collection agencies use skip tracing - accessing many databases - to pin down the whereabouts of debtors and communicate with them over the unpaid bill.

* Kind of collection tactics: Verify the collection agency's collection tactics. If the agency has achieved reasonable success by mailing letters to defaulters, peruse the communication yourself to make sure the content does not violate the Fair Debt Collection Practices Act. This protects your customer relationships. Respectfully yet strongly worded communication can get customers to pay the debt and also carry on doing business with you.

* Errors and omission insurance: Collection agencies and hiring businesses are sheltered from liability by the Errors and Omission insurance if unhappy non-payers sue them for the strategies employed to collect the debt.

* Licensing issues: The collection agency should have the legal right to practice debt collection in locations occupied by the debtors. Otherwise, the collection agency and business being serviced can be charged for illegal debt collection without a license.

* Collection agency charges: Collection agencies charge set fees or contingency rates. The contingency rate is a fraction of the total unpaid sum collected. It is recommended that you get a rough idea of the cost based on the collection agency's success rate and contingency rate before picking out the pricing option. Calculate the cost of service in both scenarios - fixed versus contingency, and select the one that works best for you.

Bad debts weigh down every business but they can are particularly risky for home and small businesses that do not have the necessary buffer to protect them in lean periods. Collection agencies are a viable choice as even after deducting their fees, you receive a considerable percentage of the collected amount.

by: Daljeet Sidhu

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