A collection agency is a company used by lenders and creditors to recover funds that are in default or past due. To keep your business afloat, you must collect payment for the products or services you render. Unfortunately, not all customers are reliable. If you’re a business owner, you likely have very little time on your hands. Many business owners have a picture in their mind about debt collectors – and for a good reason. In the past, anyone could set up a debt collection agency without being registered or regulated in any way. Almost every businessperson has encountered overdue accounts and slow payers can have a huge negative impact on your business. Today, there are rules and regulations that govern debt collection agencies. Hiring a debt collection agency is one of the easiest ways for you to put the focus back on your business, while someone else handles the debt collection process.
Here are advantages and disadvantages to hiring a debt collection agency:
Advantages of hiring a debt collection agency.
Collection agencies can reduce legal costs and other fees a business can accrue when trying to collect the debt on their own. Additionally, a good collection agency will settle debts quickly and in a cost-effective manner.
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.
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. Collection agencies keep detailed records and documents on interactions with debtors.
Fast Debt Recovery- The debt collectors you hire are experienced professionals who are well trained to persuade debtors to pay. They know recoveries past due debt can be complicated.
Debt collectors have resources – Debt collection agencies will also report delinquent accounts to the credit reporting agencies, which may negatively affect a debtor’s credit score. A debt collection agency might use different tools to recover debt such as :
- Debt collection software
- Skip Tracing
- Bank and debt locator
- Debt collection Emails
- Data analyzed communication
- Debt collection payment plans
- Microbilt Debt collection services
Legal Protection –Debt collection agencies are well-versed in these laws and rules for each individual state, as well as federal laws.
Legal Assistance– Filing a lawsuit to collect on a debt is just part of the collection process
Disdvantages of hiring a debt collection agency.
- Debt collectors charge for their services: Most collection agencies now use a contingency payment model. Agencies will only charge clients if they successfully collect. The average fee ranges from 25 – 50 percent of the total amount of debt collected per account. Fees are contractually agreed upon.
- Client relation could be affected: One may lose your customer if the agency has poor communication skills. If the agency takes a heavy-handed approach, your reputation may be damaged.
- Your business may not be a priority - you may be one of many businesses the agency works on behalf of.
- The agency may not use legally trained employees.
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. The most important advantage of outsourcing debt collection is that it frees up your time and resources so that you can focus more on core business activities. Instead of chasing after debtors, you can concentrate your efforts solely on day-to-day operations. This way, you can achieve more goals and move your company towards profitable growth. Your collection efforts will be more effective and efficient, you can minimize legal risks, and you will have access to valuable professional advice when it comes to credit management.