When your invoices remain unpaid and you are not getting anywhere with your customers, you may want to hire a reputable debt collection agency. The longer your debt remains unpaid, the less likely it is to be paid. It doesn’t make sense to direct your own workforce toward making collection calls and recovering debts, and it is likely that employees without proper training will have trouble collecting your unpaid debts. Therefore, it is definitely a good idea to leave the debt in the hands of a professional collection agency that is likely to recover what you are owed (or at least a portion of it). The overall return will be much better if you employ a professional collection agency.
Many businesses are reluctant to outsource debt collection because they think it would be costly. The cost could vary from one agency to another and based on customer situations and the age and amount of the debts to be recovered. There could be several other things that decide which debt collection agency would be the best partner for your organization but fee also is a very important factor for you to understand. Generally, debt collection agencies charge in three different ways:
Flat Fee: The specific fee charged upfront in the collection process is known as flat fee.
Debt Buying: Some collection agencies purchase debt from the creditors at a discount and obtain the fees by collecting the debt.
Contingency fee: When the fee of a collection agency is a percentage of the collected debt, it is called contingency fee. With this fee, the agencies get paid only on the collected amounts. There won’t be any charge if nothing is collected. Contingency fee varies based on factors such as the age of the account, the amount to be recovered, and the industry your business belongs to.
Choosing a debt collection agency
Choosing the right debt collection agency is a difficult task. There are in excess of 4000 debt collection agencies in the U.S. and all of them are not alike. Some of them deal with consumer accounts while other agencies handle business-to-business collections (also known as B2B collections or commercial collections). Big firms generally handle both these types. Some agencies specialize in particular industries (such as insurance, credit cards, auto loans, mortgages, or medical) while others work for many industries. Some agencies provide only collection efforts while others may provide services like billing, accounting, telemarketing, or business administration. Therefore, you must choose a reputable agency with a proven track record of success based on the particular industry your business belongs to, the size of your business, and the type of services you need.
Don’t forget that an agency that offers the lowest rates may not necessarily be the best choice. When you consider a debt collection agency, ask for a client list so that you can understand whether it has experience within your particular industry and with other similarly-sized businesses. You must also ensure that the agency you are considering is licensed to do business in all the states where your debtors are located.