Choosing a Collection Agency for Your Business: Getting clients to pay is one of the most challenging, but equally crucial, jobs for a small company. You may not be able to remain in business if you are unable to collect from consumers. You may want to consider hiring a debt collection firm to handle your collections.
This article explains how collection agencies work, what questions to ask before hiring one, and how to choose the best one for your company.
What Is a Debt Collection Agency and Choosing a Collection Agency for Your Business?
Debt collectors include debt collection agencies. They are for-profit companies that specialize in debt collection.
Most states and certain localities in the United States need collection agencies to be licensed, and each state has its own set of criteria. In certain jurisdictions, collection agencies are required to obtain a bond or a certificate of authority.
Choosing a Collection Agency for Your Business
The most typical method for these collection agencies to operate is for the company to provide the agency with the names and contact information of the debtors. After attempting to collect the debt, the collection agency returns the money collected to the business, minus their charge.
The majority of collection agencies operate on a contingency fee basis, which means they are paid a portion of what they collect. This form of payment encourages them to collect since no collection equals no money for the company or the collection agency.
Debtors are sometimes willing to accept a reduced charge if collection agencies bargain with them. Because your company still owns the debt, you have the option of accepting the reduced charge or taking it back and working on it yourself if the collection agency fails.
Regulations on Debt Collection
For personal debts, the federal government controls debt collectors via the Fair Debt Collection Practices Act (FDCPA). The FDCPA, on the other hand, does not apply to corporate debt collectors.
Choosing Not to Hire a Collection Agency
You have a number of additional choices when it comes to recovering debts owed to you by consumers. Depending on the particular circumstances of each debtor, you may choose to utilize one or more of these options.
Collecting on your own is a great way to save money.
Some individuals will only pay if you force them, while others will never pay. As a company owner, it is your responsibility to establish excellent processes so that you can collect money from consumers on your own. Having your own collections management system will earn you money quicker, simpler, and at a lower cost. To protect yourself, familiarize yourself with the regulations governing collecting.
Taking your case to Small Claims Court
If the debt is modest and the debtor is local, a small claims court may be an option for getting them to pay. The procedure is straightforward and low-cost. You have a high chance of getting the court to agree if you have evidence showing the job was completed or the goods were delivered. Then you must convince the court to enter a judgment (a court order) in your favor so that you may be compensated.
Getting Rid of Debt
Businesses that purchase debt entirely are known as accounts receivable factors. You have no influence over how the factor collects the debt in this instance. This usually works best when you have a large number of receivables and need money fast. The fee is calculated as a percentage of the total amount recoverable, depending on the worth of each debt (how difficult it will be to collect).
Most Commonly Asked Questions
What is the cost of hiring a collection agency?
Fees are charged by collection agencies depending on how difficult it is to collect. Furthermore, their fees are set as a percentage of the total money collected. Fees vary depending on the amount of the debt, ranging from 50% for bigger loans to 10% for minor debts. Because collecting debts becomes more difficult the longer they go unpaid, collection agencies may charge you up to 50% for debts that haven’t been paid in a year or two.
What are the advantages of using the services of a collection agency?
In a variety of circumstances, collection agencies are a viable option:
- When you’re unable to locate a client
- If the debtor’s debt exceeds your state’s small claims court limit, you may take them to small claims court.
- When you have a number of difficult-to-collect debts,
- If you’re certain you won’t be interacting with this client again,
However, if you need to maintain a long-term connection with this client, you may not want to employ a collection agency since they could quit doing business with you if you send a “bill collector” after them.