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The problem of cash flow is one which every business encounters at some time during the course of its existence. This is because all business in the modern age functions on credit – at least to some extent. While there are many advantages of the system, sometimes it becomes difficult to collect the due amount within the due date. If you are facing such a situation, you should not ignore it.

The matter should be pursued at once because longer a debt is left uncollected, lesser is its chance of finally being collected. So, small business owners should start reminding the clients of their remaining payment soon after the missed deadline. However, you may not succeed in obtaining the money, no matter how many times you send your request by phone or letter. It is at such times that a collection agency has to be called in.

What is a collection agency and what are its functions?

Collection agency is a firm which specializes in collecting due amounts. They can be of following types:

1. In house collection agencies are actually a department in a large business. Its job is to collect overdue payments owed to the company. It works for only that company.

2. Third party or outside collection agencies are more common and are used by small businesses. These are independent firms which recover the amount due to be paid to your business in return for a fee. The third party collection agents can be classified into two depending on their method of functioning:

a. Most third party collection agencies work on the basis of a fee. This may be a flat fee but more commonly it is a percentage of the amount recovered.

b. On the other hand, some collection agencies buy the debt outright. If you feel that you will not be able to recover any portion of the debt, then you can sell off the debt to the collection agency. Whatever price you get is your earning. It is now the task of the collection agency to recover the debt. Even if it manages to recover the full account, you will not get any portion of it.

Collection agencies function in a variety of ways to recover the debt. These include making phone calls and writing letters. Some agencies can provide you with legal consultation if it becomes impossible to recover the debt. However, they cannot use threats or intimidating tactics to recover the money.

Factors to take into account while choosing your collection agency

If you have to employ an agency to recover due payments, your first task is to choose your debt collections company well. Here are a few guidelines to help you choose the best collection agency for your purpose:

– You can find collection agencies advertising over the internet or listed in the Yellow Pages. However, before you hire any of them, you should check their credentials. In about twenty states, collection agencies need to be licensed. You should check your state laws to make sure of this provision and see whether the agency is properly licensed. In other states, some forms of registration are required. In these states, you should find out if the agency belongs to the local Chamber of Commerce and whether it is a member of National Trade Association. All these are marks of professional integrity and permanence.

– Decide on the specialization and the scale of the debt collection. It may be better if you choose a commercial collection agency which specializes in the type of business in which your firm is engaged. This is because the agency will have better understanding of the situation and will also have contacts within the industry which may help in the process of collection. The scale of operation means you can choose a small local firm or a nationwide one or even one which operates all over the globe. Large firms charge higher, but generally deliver better results.

– The most important factor to consider is of course the cost. However, the collection agency charging the lowest may not always be the best. Instead, you will have to compare the charges with their rates of recovery and come up with the best solution. Debt collections either charge a flat fee or a percentage of the collection. If an agency promises to take a small percentage, but fails to recover any significant amount, you will have no profit. On the other hand, even if an agency charges more, if it can recover a bigger amount, you will end up with profit.

– In order to understand this, it is vital to check the past record of the debt collections so that you can make a realistic estimate about its cost-recovery ratio. Look out for reviews and discussions on blog posts. You can ask the agency to provide letters of reference and talk in person to other business owners who have used the agency in the past.

– To the client, the collection agency will be representing your firm. So, you will have to make sure that you engage such an agency who can handle this delicate situation with tact. Otherwise, their strong arm tactics will reflect badly on you.

– It is vital that the collection agency should follow the Fair Debt Collection Practices Act (FDCPA). You should ask for the details of the process they use for debt recovery in order to make an informed choice.

– While you should choose collection agency with a high rate of success, run clear of anyone who makes extravagant promises. One-third of all debts are recovered easily; one-third are recovered over time while the rest are never recovered. If the success rate of the agency is significantly higher, then it may not be completely transparent.

– Choose an agency where the personnel meet with you promptly, are willing to answer your queries and keep you informed of their activities and progress.

– If you have a large amount of debt or several debts to recover, you should ask for a trial run. If

By yanam49

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