Bad debts could affect the profitability of your business. However, most business people are often conflicted about hiring debt collection agencies. Below is a piece explaining the benefits of debt collection agencies and considerations to make when engaging these agencies.
What Are The Benefits Of Debt Collection Agencies?
These are the advantages of hiring a debt collection agency:
- Your clients will likely pay up when you involve a third party to collect their debts. If you ask them to pay their debt, they could use your relationship to ask you for more time to pay the debt.
- Collection agencies understand the legalities of collecting bad debts. For instance, they avoid threatening the debtor since they could counter-sue you for rights violation.
- Collection agencies conduct due diligence to determine collection strategies. For example, they could ask the debtor to pay in instalments or opt for court action, depending on the debtor's financial situation.
- Hiring a collection agency allows you to concentrate on essential business operations such as production and marketing. Remember, you spend significant time and resources following up on bad debts.
Considerations To Make When Hiring A Collection Agency
Your primary concern would be the collection agency's ability to collect the debt. Consequently, conduct due diligence to establish the following;
- Is the collection agency licenced in your state? You could land in legal trouble if you engage an unlicensed collection agency to collect your debts.
- What is the collection agency's success rate? Examine the agency's portfolio to establish the average percentage of debts collected.
- What strategies does the agency use? Many agencies pull all stops to collect the debts. For instance, they seek court orders to become interested parties in proceedings. This way, you still get paid even if your debtor sues for bankruptcy.
- Does the agency give any guarantees? Some agencies will assess the debtor's credentials and promise to get your debt repaid within a specified period.
If you are confident in the agency's competence, assess its terms and conditions. For example, what are your obligations? Most agencies compel you to produce the required paperwork to prove the other party owes you a debt. Moreover, they could ask you not to contact the debtor once you engage their services. Then, inquire how the agency conducts its services. Many agencies contact the debtor and draft a repayment contract. Typically, this agreement compels the debtor to pay in instalments to ensure they do not liquidate their businesses while repaying your debt. Finally, ensure the agency has reasonable pricing. For instance, you could ask them to take a slight percentage of the collected debt instead of paying a fixed cost.
Contact a debt collection agency for more information.