Hiring commercial collection agencies is a must in the current economy, when the default option for a lot of clients seems to be to drag out the payment process for as long as they can. If you’ve done the basic research you’ll know that commercial collection agencies are more cost-effective than doing collections in house because they usually cost nothing up front and retrieve more receivables in a shorter amount of time.
First of all, phone calls from commercial collection agencies are often enough to get a slow-paying client to send a check. Existing clients may take advantage of their good relationship with you and drag their feet as long as possible, hoping to trade on your goodwill. Calling in a professional debt collector shows them you mean business.
Once you’ve found a list of potential commercial collection agencies, it’s time to interview them regarding their success rate. It’s best to pick an agency with a higher success rate, and ask for documentation to prove their claims. An agency that charges 40% of returns as a fee but has a 75% success rate is preferable to one that charges 30% and has a 50% success rate, for example.
Commercial collection agencies have more clout with clients than in-house debt collectors as well. Chances are if your client isn’t paying on time, he or she has major cash flow problems and is playing triage with bills. The vendor who shows a serious commitment to debt collection by hiring commercial collection agencies is the vendor that will get paid first when there’s not enough money to go around.
Commercial collection agencies also successfully recover the bulk of their receivables in three weeks or less. We all know in business that time is money, and getting that money quickly helps both your cash flow and your credit score. In addition, the longer a debt is outstanding the more likely it is to remain unpaid, so early recovery is extremely important in debt collection.
Commercial collection agencies in most cases are not paid until they collect; at that point they receive a percentage of the recovery. In this way, they can actually be cheaper than using in-house collections, because an employee doing collections is taking time away from other work that he or she could be doing.
When using an agency, there’s no cost up front, and no cost at all if they are unsuccessful. Some commercial debt collectors boasting success rates of as high as 98%, even after paying their fee your return rate is likely to be much better than it would be if you did it on your own.
With all these arguments in their favor, the question should not be whether or not to use commercial collection agencies, but how soon can you get started? Commercial collection agencies can significantly improve your chances of recovering bad debt at no upfront cost and little ultimate cost. For the small business owner who relies on positive cash flow, commercial debt collection can be a life saver.
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