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Reducing Bad Debt by Outsourcing Accounts Receivable Management

Aug 17, 2007
One of the toughest growing pains for an expanding company is getting a handle on past due accounts without spending more in staffing and training than stands to be collected. Because the cost to train and hire a qualified in-house staff to manage accounts receivables often outweighs the cost of collecting the debt, many companies simply write off their early debt as a loss. However, in today's modern business age where there is a less expensive - and often higher quality outsourcing solution for just about any need, no business of any size need lose a dime for lack of affordable AR resources.

While your first thought might be to contact a general accounts receivable firm, who better to keep on top of bad debts than a collection agency? A collection agency is as motivated to collect on debts as you are because they aren't paid until the debt is collected, unlike a staffing company who is paid for processing time. Further, it is the job of collection agency staff to remain up to date on laws, processes, and the delicate balance of psychology and perseverance needed to keep your debtors paying on time.

When your company works with a collection agency it's like instantly adding an entirely new department to your firm that is fully staffed, properly equipped, and with tried and true systems and strategies. The collection agency will operate under your company's name, sending letters on your company letterhead, making calls under your company name, and forwarding all funds to your company.

Adding an accounts receivable management team by way of outsourcing a collection agency is most beneficial for business with large numbers of credit accounts. Smaller companies with fewer accounts may find it easier to contact a collection agency when individual accounts become delinquent. But for larger companies that need top notch account managers, hiring a collection agency for accounts receivable management is often less expensive than bringing on a full time staff with similar levels of experience.

By outsourcing, companies gain access to top notch collection agency professionals and advanced collection agency resources even if they don't have full time AR management needs. It doesn't take a long roster of past due clients to make a big dent in a company's bottom line. According to statistics, once an account becomes 90 days overdue, your business is likely to receive only 73 cents for every dollar owed. After 6 months, the amount drops to 50 cents on every dollar and down to 25 cents after one year. Bringing a collection agency on to handle accounts receivable addresses delinquent accounts within the first 90 days, before they get out of hand.

A word of caution: the collection agency you choose will be an extension of your company's image. When choosing a collection agency to handle your accounts, make sure that they adhere to a solid code of ethical conduct. Even if your customer has been late on a payment, you won't want an overzealous collection agency treating your customers disrespectfully. Even the best customers hit financial rough patches. A customer behind on a payment today could potentially be your biggest client a year down the road. When choosing a collection agency, be absolutely sure that they are committed to handling your customers with respect while still getting results.
About the Author
The author is a freelance copywriter. For more information about what a collection agency can do for you, visit www.AABUSA.com.
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