Outsourcing your debt collection

Collecting debt can often be a tricky and awkward challenge for small business owners to front. Sometimes it's a far better investment to employ the assistance of a debt collector rather than waste time chasing up the money owed from your customers by yourself.

Debt collectors operate on two different terms, either on a contingent basis, where they charge a percentage of the debt collected, or alternatively they can purchase the debt outright for a fee and claim all money they collect from the debt. Purchased debt is more often associated with large sums therefore most small businesses would operate on a contingent basis.

Outsourcing your debt to a debt collector will not only save you time, it will also leave your debt in the capable hands of experts more qualified to make a collection than you are.

Despite the fact debt collection agencies don't operate any differently to creditors, debt collectors are renowned for producing better results. Debtors have a reputation to uphold themselves, therefore they will often pay money owing in full or discuss mutually agreeable terms in order to immediately retire their debts and limit any information spreading on their payment history.

Remember, don't spend too much of your own time trying to settle a debt. An expert who is unattached to the business and has had previous experience working with a wide variety of difficult debtors will be able to resolve past-due accounts much faster than yourself or your credit manager.

Type of debt to refer for collection

Most debt that is referred will usually be done based on a timeframe. For example, you could install a rule that states any debt over 45 days overdue is immediately referred. Other examples of referrals include changes to a customer's financial conditions or the occasion where a customer gives you reason to doubt their credibility. However, these approaches to debt collection are very rigid and offer little flexibility. Your cash flow can be improved by a more sophisticated approach to collections.

Good debt collection agencies will go beyond the call of duty and use their experiences with different types of debt to determine what debt is collectable and the ideal way to collect it. Based on the agency's understanding of different types of debt they may also be able to provide insight on debts that aren't yet overdue but are showing signs of potentially becoming overdue, as well as debts that may be collectable yourself with a few minor adjustments to your approach.

Ultimately, in order to achieve maximum results from debt collectors it is important you forward on the debts that are most likely to give you the best chance of boosting your cash flow.

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