subject: Why Use A Commercial Collection Agency? [print this page] In today's competitive business environment, many customers simply take it for granted that you will provide them with credit facilities. If you don't, they might go elsewhere. If you do, you are sooner or later going to end up with customers who either don't pay their accounts at all, or who pay too little or too late. The effect of this will be that your business runs into cash flow problems, so you can't pay your own suppliers. Basically you have two options: either you maintain a full-time debt collection department, or you outsource debt collection to a commercial collection agency. Let us briefly look at the benefits of the second alternative.
Free existing staff: The first major benefit is that your staff members will no longer have to carry this burden. By using an outside agency you will free your own staff members to concentrate on their core duties. This is unless you have a full-time collection department, in which you carefully have to weigh the cost of running the department against that of using an agency.
Cost: A full-time collection department will result in salaries and contributions that must be paid every month, whether they are successful in recovering outstanding debts or not. The majority of commercial collection agencies work on a system whereby they only get a commission based on the amount of money they collect on your behalf.
Response time: The more money you have tied up in outstanding debt, the less money you have in the bank. This means you have less money to run your business with and you will either lose out on interest received or pay more interest on your overdraft. It's therefore imperative that debt be collected as soon as possible - something which comes naturally to a collection agency. You might find that your own staff drag their feet when it comes to collecting money, because most people hate to do this.
No lost sales: Many companies use their sales personnel to act as part-time debt collectors. The argument seems to be that if you made the sale, you have to see that the money comes in as well. This is a very distorted argument. In the first place it will most likely harm the good relationship between the sales staff and the customer and in the second place a salesman can't generate sales while he is busy trying to collect outstanding payments.
Existing customers: It's generally much cheaper to retain an existing customer than to acquire a new one. If you use an outside company to collect outstanding debt, it should have less effect on the relationship between you and the customer than if you tried to do it yourself. A lost customer can in the end cost you much more than the money he owes you right now.
Last but not least: your business's credit rating is of the utmost importance. There might come a time when you want to approach the bank to apply for a loan to expand your business. They will no doubt ask for financial statements. And if they notice large amounts of bad debts written off and a growing amount of potential bad debt, they will most likely not grant you that loan. This is just another reason for using professionals to handle your outstanding debts. A commercial collection agency who knows what they are doing will keep the cash rolling in!
