Bring in the experts - how a collections agency can help

Few small businesses recognise the benefits of engaging a collections agency when a debt is outstanding. There is a common belief that the costs of commercial debt collectors make the practice financially out of reach for smaller operators. However effective debt collection is an important part of business growth and using a debt collector can actually save money and help a business grow. Remember, debt collectors are the experts and they have resources you don't.

The most important thing is to be able to recognise when a debt is becoming too hard for you to collect and when it is time to pass it on to the experts. Set limits as to the amount of debt you will pass on as there is little point asking a collection agency to chase a debt of $50 however for $500 it may be worthwhile. You may also like to set a time frame for your collection efforts, choosing to pass the debt on to the collection agency once it has reached 60 days past due - it is your prerogative and you need to decide what is most appropriate for your firm.

A collection agency can help your business in the following ways:

Save resources

Time and money are valuable resources for any small business so don't waste yours collecting a tough debt. It is preferable to put your time and effort into growing your business rather than chasing a customer who wouldn't pay their bill. The same goes for your staff - each hour assigned to chasing debt is an hour you have to pay them. Any money allocated to tasks outside your key business activities is detrimental to the growth and functionality of your business. It is money spent on chasing debt rather than time making sales, so focus on your core business and leave the debt collection to the professionals.

Collection agencies are set up to handle these situations and its likely your business is not. An agency has collection techniques and technologies to assist them recover the money, significantly increasing the chance you will recoup the money. Collection agencies are also up to date with compliance and legal issues associated with debt collection, meaning you avoid any potential conflicts.

Maintain relationships

Your customer relationships are the future of your business and the last thing you want is for your relationships to suffer as a result of bad debt. You should be able to maintain your relationship with the client and do business in the future by distancing yourself from the collection process. If you are not the one chasing the customer for payment, there is less chance you can say something you regret in the heat of the moment.

Collection agencies have more pull and authority with clients and it sends a message you take the debt seriously with little intention of writing it off. Ensure you thoroughly research the debt collection agency before you hand over your debt to make sure they will be professional and respectful. The last thing you want is to engage an agency which deploys aggressive behaviour that alienates your customers.

Keep in mind that if you plan to continue dealing with the customer that you've had to chase for payment they will need to rebuild your trust. Renegotiate your terms or ask for payment upfront rather than extending credit again. 

Make money

Contrary to popular belief, hiring a debt collection agency can actually make your business money. Collection agencies will charge a fee for the service but only if they are successful. They may only collect a portion of the debt but you need to remember that you may not have gotten that bill paid at all so be happy with whatever it recovered. You can also include a clause in your trading terms and conditions meaning you can pass on a debt collector's fee to the debtor so your business will not be out of pocket.

With debts outstanding you may struggle to pay your own creditors and consequently find yourself caught up in a never-ending circle. Without sufficient funds you may be unable to purchase your own supplies, affecting your stock levels and gross profit so paying the small fee to recover an outstanding debt could save your business from going under and even allow your business to grow by freeing up your resources.

Engaging a debt collector also shows your customers that you are serious about debt. You will not only recover this debt quickly but your customers will be less inclined to test the boundaries again making sure you are paid on time in the future.

Dun and Bradstreet provide a debt collection service specifically designed to help small businesses. For more information email dnbcollect@dnb.com.au or visit dnbcollect >>

 

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