Almost every businessperson has encountered overdue accounts and slow payers can have a huge negative impact on your business.
In fact, according to a U.S. Bank study, 82% of businesses fail due to cash flow issues.
So the question becomes: why wouldn’t you hire a debt collection agency?
Here are a few of the many reasons why you should hire a debt collection agency to manage your accounts receivables.
Why hire a debt collection agency?
Reason #1 | Efficiency
Collection agencies can reduce legal costs and other fees a business can accrue when trying to collect the debt on their own.
Agencies also have more advanced tools for collecting, like skip tracing and credit history analysis that can simplify and speed up the process, while increasing cash flow.
Additionally, a good collection agency will settle debts quickly and in a cost-effective manner.
“You always want to resolve debt issues as quickly as possible. The longer it sits there, the lower the collectibility gets,” said Wayne Vidzicki, Director of Collections and Premium Audits at Berkshire Hathaway GUARD Insurance Companies.
And, most agencies operate on a contingency fee basis, meaning if they don’t collect, you don’t pay.
Reason #2 | Legal Protection
There are numerous laws, some differing by state, that govern the debt collection industry and well-informed debtors won’t hesitate to sue if they know a law has been broken.
Debt collection agencies are well-versed in these laws and rules for each individual state, as well as federal laws.
Hiring a collection agency will mitigate the legal risks involved in trying to collect the debt on your own.
Reason #3 | Sarbanes-Oxley Compliance
After the infamous demise of Enron in 2001, the Sarbanes-Oxley Act was established to “protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.”
In short, debt collection agencies can assist your company’s ability to demonstrate a self-compliant financial accounting framework and controls as part of your Sarbanes-Oxley requirements. This not only demonstrates due diligence but might reduce the overall consultancy costs.
Reason #4 | Advice
Since collection agencies specialize in credit management, your company can gain valuable advice and support.
Collectors can also provide helpful advice and support to debtors on how to get out of debt.
“One of the things I always tell my collectors is that a lot of people think that collections is just about collecting money – it’s not. Your job is to resolve debt,” Vidzicki said.
“A large part of that is collecting money, but people make mistakes and sometimes there are errors. The idea is that you’re always looking to resolve the issue.”
Reason #5 | Increase Cash Flow
Cash flow is the biggest reason why businesses fail.
Collection agencies provide credit management services that can increase your cash flow and keep it under control.
“Hiring a collection agency has proven very, very successful for our company. There was a huge impact within three to four months of pursuing them,” Vidzicki commented.
Reason #6 | Prevention
Debt collection agencies can analyze the credit history of potential clients to spot possible slow payers, saving your company more money in the long run.
It’s better to be safe than sorry.
Reason #7 | Documentation
Collection agencies keep detailed records and documents on interactions with debtors.
Should you decide to sue, the collection agency will most likely have enough evidence to prove that sufficient effort was put forth into collecting the debt, and the debtor failed to cooperate.
Additionally, if you claim the bad debt as a write-off, the agency will have the appropriate documentation.
Reason #8 | Litigation
Some collection agencies have an in-house law firm to assist on whether to file a lawsuit or not.
The agency can complete a thorough asset investigation and provide you with a complete history of the debtor’s payment trend and financial status.
Having this information will enable a fact-based decision, increasing your odds for successful and profitable litigation.
Return on investment is the focal point for collections. Losing money on litigation is not an option.
Reason #9 | Audits
Brown & Joseph is the only collection agency that offers premium audit services through CPAudits, in addition to collection services.
CPAudits conducts virtual audits, which significantly reduces the time and cost of completing an audit.
CPAudits, in tandem with Brown & Joseph, also offers an Estimated Audit Resolution Program (EARP).
“It actually helps insurance carriers gather more premiums that are being left on the table. Insureds sometimes do not want to do audits. At the end of the policy term, they don’t do an audit or don’t complete an audit and as a result, the insurance policy allows the insurance carrier to estimate their premium, which creates an additional amount of premium to be collected. A lot of times, they’ll set that aside because they don’t have the effort to complete collections and that’s where Brown & Joseph comes in,” says Mark Dierking, Premium Audit Manager at CPAudits.
“The EARP allows the collections side to go after the estimated premiums. If the insured wants to comply with an audit at that time, CPAudits is right there to help out. That is a benefit in a lot of ways for Brown & Joseph customers in the sense that it provides big savings to them.”
Reason #10 | Skip Tracing
The best collection agencies use an advanced tactic called “skip tracing.”
Skip tracing is the process of locating a debtor who has “skipped” or left town, hence the name “skip tracing.”
This is especially helpful for cases in which the debtor hasn’t answered or returned repeated calls, emails and letters.
The next time one of your customers seems to disappear into thin air, consider using skip tracing services to track them down.
Reason #11 | Shifting Focus Back to What Matters
Letting a collection agency manage debt will allow you and your employees to focus on your core business activities, instead of trying to manage debt collection efforts.
The truth of the matter is that when you are selecting a collection agency, you get what you pay for. When an agency offers a low contingency fee, there is a reason. Anyone in business knows that there is a cost to doing business.
So if an agency has a low fee, it means that they have to cut corners on their operating costs somewhere.
For example, it may be that instead of skip tracing to find a good phone number, they close your file as noncollectable when they reach a phone number that is disconnected.
On the flip side, you don’t want an agency that will price gouge you and not perform to your expectations. You want a fair price and the agency to perform their due diligence.
If you send the agency 100 accounts, their rate of recovery on those accounts should give you a clear indication as to their due diligence, which could dictate the price.
Try this: Look at the returns you’ve seen previously and give them your expectation for the percentage of files you expect them to recover at a regular rate.
If they exceed your expectations, offer a bonus. If the collection agency you are talking to hesitates on the idea of a potential bonus for your recovery rate benchmark, don’t think twice, keep looking for another agency.