Determining when to call in a collection agency

One of the more difficult aspects of owning or managing your own company is being able to determine when you should call in a credit agency to help you collect payments from customers who simply don't want to pay what they owe you.

Here are some guidelines that can help you know when you need to call in a collection agency, what that collection agency can do for you, and what the costs of a collection agency might be.

1.Sooner is better than later.
If you are wondering whether or not you should call in a collection agency to help you with some of those accounts, do it.The longer you wait to collect on accounts, studies have shown the less chance that you will have to actually collect the money that is owed to you.

The rule of thumb that you should follow is that you should call the customer the day after the payment is due.Don't be threatening; a polite phone call is the best way to resolve a situation that usually just involves a busy schedule and a faulty memory.

However, you should keep in mind the following statistics, which have been put together the Commercial Law League of America.If a collection agency is called in at the three month past due mark, then you will probably be able to get about 74 percent of what is owed to you.What about waiting for six months to call a collection agency?Your odds of getting paid drop down to 56 percent.And if you wait for over a year to demand your payment through a collection agency, then your odds fall to a measly 20 percent.

2.Begin with your own efforts to collect and then move on to a collection agency.

You should make a polite phone call to the customer the day after the debt is due.If your phone call doesn't get results, then you should send some letters reminding your customer of the debt.

If neither of these approaches really work, then you should consider your relationship with your customer and how much money they actually owe.For example: if this is your first time dealing with a customer, and that customer owes you a rather substantial amount of money, then you will want to call a professional collection agency sooner than you would call an agency to collect from a valued long-time customer.

Once a customer owes money that is from 60 days to 90 days past due, you will want to call a professional collection agency.Otherwise, as shown by the numbers above, your chances of actually collecting are not very strong.

3.Consider the type of collection agency that you are going to hire.

There are really two ways that you can attempt to receive payment on debts through a collection agency.The first way is to actually set up a separate company name, address, and phone number for your own internal collection department.This approach might work better on more recent debts, as opposed to seriously long standing debts.

The other approach is to actually hire a third party professional collection agency.Generally speaking, third party collection agency will work on commission, which means that they are motivated to ensure that your debts are collected.If you hire an individual collector, he or she will be paid commissions plus a base wage.

Sometimes agencies will actually purchase bad debts for a small amount of the face value of the debt.This means that now the collection agency owns the debt, and the debtor has to pay to the agency.