When A Business Should Use A Collection Agency: Part 1

Hi,
There are many different reasons why all kinds of businesses hesitate to utilize collection agencies. Over the next couple of days I am going to discuss some of the fears and misgivings companies have about whether or not to turn their accounts receivables over to collection agencies. One of the most common fears businesses have is that it will hurt their public image. Businesses provide goods and services, expecting to be paid. When customers don't pay, pursuing payment is a normal course of business action. Another common fear is that collection agencies operate outside the law and without professionalism. The best way to alleviate this fear is to go to the collection agency and become comfortable with the people and surroundings. The last major objection businesses have in turning their accounts over to collection agencies is the cost which is almost always on a contingency basis, ranging from 10%-50% of the amount owed. This objection is understandable. However 50%-75% of something is better than 100% of nothing. Large corporations generally have an intermediary step in the collection process, as they have an in-house collections department. Statistically, by the time an account goes through the collection process from the credit department to the collections department, the company's chance of successfully recovering payment on that account is almost nil. As I've referred to in previous blogs, many large companies have gotten away from professional collectors and replaced them with customer service people who have only a generic menu available to resolve accounts. Three major reasons a large corporation should send an account to a collection agency:
1) The account will be serviced by a person skilled in the collection process, and who specializes in the field of difficult collections.
2) If accounts need to be litigated, they can be assigned to the collection agency and therefore sued under the collection agency's name. This helps to preserve the corporation's public image.
3) Sending accounts to collection agencies allows companies a partial recovery on accounts which would otherwise be charged off.
These are just some of the reasons companies should take advantage of utilizing collection agencies. Due to the generic approach large companies are taking in regards to collections, the personal touch used by collection agencies may make the difference in the successful resolution of past due accounts. Tomorrow I will talk about the benefit of collection agencies for small businesses.
Until then,
Alan

Collections

Hi,
Yesterday I talked about the importance of the debtor to acknowledge communication from a collection agency. If a person chooses to completely ignore all written communication and repeated phone calls, in many instances the collector has no choice but to turn the account over to the attorneys for litigation. It is important to realize that even something as small as an ignored library fine may be reported to a credit bureau. This can result in significant increases in the cost of everything from insurance to mortgage costs. Remember when a collection agency makes contact, they want to resolve the matter just as quickly as the debtor. So when contacted, immediate response is in the debtor's best interest. The final collection remedy I have not yet discussed is litigation. Very seldom will a collector mention legal action if he or she has not already been authorized by the client to proceed in that manner if necessary. Once an account is transferred to attorneys, 99% of the time, the opportunity for account settlement has expired. If a debtor receives a demand letter from a law firm it is imperative that the debtor communicate immediately with the law firm. Otherwise, the debtor will start incurring high attorney fees and court costs. On many occasions, people are amazed that a relatively small bill (IE $500.00) has all of a sudden grown from $1,000.-$1,500. because it has been turned over to attorneys. The easiest way to prevent becoming involved in a long arduous collection process is to respond immediately to a collection agency and resolve the account. Next week, I will talk about when businesses should submit accounts to collection agencies.
Until then,
Alan