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Should Your Business Use A Collections Agency?

Aug 17, 2007
In the world of business, it is inevitable that you'll experience some money collection problems from your customers. It may be a mild case of someone not being able to pay on time. It may also happen that one of your customers has totally forfeited on his due payments. What do you think you should do in cases like these?

Some companies have a credit and collection department precisely to address these issues. If you have one, then collecting from your debtors shouldn't be a problem. However, on what grounds should you decide to create a credit and collection department in your own company or should you shift your commercial collections to an outside collection agency? Will it be better for your company in the long run?

There are basically no rules about when to hire a collection agency. The barometer seems to be when you are experiencing severe cases of account delinquency, either in terms of the number of cases or in the situations or circumstances surrounding a particular customer. For instance, after your own company has tried to negotiate with him through non-threatening ways, like letters, phone calls and personal visits, your customer has simply refused to pay what he owes. This may be a good time to hire the services of a collection agency.

However, there are also other facts that you should know about before hiring a collection agency even though it is a fact that the faster you can place an account for collection, the faster it is to recover your money.

First, there are unscrupulous agencies out there that are simply out to make money off of you. You may be duped into thinking that they'll collect money for you and instead they'll simply walk away with it. Too bad for you especially if you shelled out money in order to partake of their services. What you can do is check with the Certified Collection Agency Association of America to be sure that the collection agency you're eyeing is a registered member. Doing this ensures your company protection from fraud.

Second, when hiring a collection agency, in truth you are already outsourcing this function of your own company. This kind of service needs a partnership that is well-defined and that goals and objectives of both parties are met. If you're not too careful with the selection of your collection agency, you may experience some difficulty in recovering your money. For instance, they may not be as customer-oriented as your own staff and are simply focused on getting the money any way they can. Even though, technically, the customer is at fault, it still reflects poorly on your company if your collection agency doesn't treat your customers right.

Third, a collection agency is supposed to be transparent to your customer - meaning their presence shouldn't be felt by the customer. It has to appear that it is the same company collecting what is owed them. When they do their business with you, it should always be in the name of the company they're representing. Sometimes, people don't respond favorably to collection agencies and so all your hope of collecting will end up in smoke.

Lastly, in exchange for their services, some collection agencies may charge up to 50% of the total amount owed and collected. Is this amount sufficient enough to hire their services or would you rather stick to your own people to do the work?

In the long run, it is your choice whether you really need to hire a collection agency to recover your losses. Just be sure to protect yourself against unsavory agencies, look for well-recommended partners and decide whether their fees far outweigh their success in the business.
About the Author
Tristan Andrews writes useful articles about debt collection agencies. Find out how using a collection agency can expand your financial horizons at http://www.collectionagencyservices.net
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