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Hiring A Collection Agency

Apr 4, 2008
Creditors often wonder when they should place an account with a collection agency. Accounts should be placed with a collection agency if an account is 90 days delinquent and you have received no response from the customer.

About 120 days after the invoice date a number of statements, collection letters and calls have already been sent out. If you have tried to bring the customer's attention to the delinquency and the customer has not responded this indicates a cash flow problem, a show of bad faith, or a lack of concern. Your best chance of collecting the money owed is to place the account with a collection agency that is certified.

There are some occasions where you should place an account with the collection agency before 90 days. When a customer has broken promises of payment or indicates and inability to pay, this is a cause of concern. Consider calling a collection agency if you have been promised payment but have not received any checks. Also, call a collection agency if the customer says they are unable to pay their debt and refuses to initiate a payment schedule.

A customer may repeatedly ask for certain documentation that was already sent. This is commonly done when a customer wants to delay paying on their account. Also, if a customer says they will take care of their account but will not establish a payment schedule this could indicate a cash flow problem and the account should be sent to collections.

There are other signs to watch for as well. If a customer relocates without notifying you of a change of address or denies that they owe you money are two reasons to call a collection agency. If a customer refuses to pay because they are disputing the quality of your service or product may also be cause to call a collection agency.

When you are choosing a collection agency, make sure to follow a couple of key guidelines. First, find out if the agency you are thinking of using is a member of an organization such as the Commercial Law League of America. Organizations such as these require members to be ethical and understand laws such as The Fair Debt Collection Practices Act.

Inquire about the collection agency's average recovery rate and ask for references. Contact the references they give you and ask them the amount of time it took for the agency to collect on delinquent accounts, if they collected the debt in full, and if they were pleased with the service.

When running a business it is quite easy to extend too much credit, especially when you are trying to attract companies to your business. Be careful because if you extend too much credit this may lead to accounts that are unpaid and this will limit the cash flow that you need in order to build your business. It is important to keep abreast of any overdue accounts because over time, your chances of collecting the money owed decreases sharply.

Check all credit references carefully for your new accounts and don't offer more credit than your company can deal with.
About the Author
Tristan Andrews is a freelance author who writes articles about Collection Agencies and Collection Agency Quotes.
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