Debt collection can be taxing and complicated for small business owners who simply want to focus on selling products or services they're passionate about.
Chasing up overdue debts is never a pleasant task and often involves significant paperwork, time and effort - particularly if you don't have a dedicated accounts receivable management department.
Here are three signs it's time to outsource your debt and take the burden of chasing up debtors off your shoulders, leaving you free to concentrate on running your business.
You/your staff are overworked and stressed
A sign that debt collection may be taking a toll on your business is how your staff feel - is the strain of managing the accounts receivables process and completing their day-to-day tasks getting to your employees? Have they mentioned that they are at over-capacity or stressed out? Are they spending longer hours at work?
The key is to talk to your staff on a regular basis, whether during one-on-one catch-ups or team meetings, to determine if it is indeed the additional responsibilities of debt collection that are affecting their work performance.
You're spending more time on debt collection rather than on your business
Debt collection is hard, long work as it involves determining which debts have fallen overdue, compiling letters of warning to customers with overdue debt, making initial contact and then following up to ensure the money that's owed to you is repaid.
If faced with a difficult customer, debt collection is not a task that can be completed in a few days or even a few weeks - the process can stretch out to months if the customer refuses to pay! If you find yourself spending significant time on debt collection - such that it's compromising your ability to run your business or provide good customer service - consider outsourcing your debt to a third-party agency.
A debt collection agency can free up time spent by yourself or your employees that could be used for core activities.
You're having trouble keeping tabs on your debtors
It can be difficult to keep track of more than one debt owed to you by a range of customers, especially if they all have varying deadlines. Additionally, you may also need to prioritise the customers that owe you more money over the ones that owe you a small amount.
Consider this scenario: Customer A owes you $1500 and the debt is nearing the 60-day mark but you have not made initial contact, while Customer B owes you $500 and the age of the debt is 35 days, yet you have already written letters and made initial contact.
The recommended advice is to collect the debts that matter the most to you - in this case, Customer A as he/she is the account with the bigger and more overdue debt. This doesn't mean that Customer B's debt isn't important, it just means that you should prioritise Customer A's debt as it's more urgent. Research shows that the longer you leave a debt overdue, the less likely it is to be collected.
Debt collection agencies can not only help you prioritise your debts, but also possess the experience in the field to increase your chances of success.