Accounting & Finance
It’s Time to Pay Up! How to Hire a Collection Agency
What’s the worst part about running a business? Chasing down customers for payment. It’s draining and stressful. At times, it can even destroy the relationships you have with clients.
It’s also important to do to keep your business moving. Without paying customers, you don’t have cash flow, which is the top reason why businesses close. If you don’t have cash on hand, how will you manage your own bills?
The option you have is to hire a collection agency to take care of that for you. Keep reading to find out how to hire a collection agency.
Before Hiring a Collection Agency
A collection agency is a big step in your business. If you want the collection agency to help you collect the money owed to your business, you should have a few things in place before taking that step.
Have a Contract
Do you have proof that the person or business owes you money? A contract that clearly states the payment terms, the deliverables, and is signed by both parties helps your cause.
It should be a formal document that can be enforceable and held up in court. Sometimes, emails that acknowledge a customer’s responsibility to pay can be held up in court, too.
Create a Paper Trail
It is entirely possible that your case may wind up going to court. The more documentation that you have on hand, the better. You want to have a contract and anything that can support your case — like emails.
You also want to show that you took steps to collect on the debt to your business in a methodical fashion. It may not look good if you hand off a debt that’s a week old to a collection agency.
You should show that you made multiple attempts to collect and then hired an agency as a last resort. First, make a few calls to the client. Make notes of any commitment to pay, or if the client acknowledges the debt.
If the client tells you that they’re going to pay, ask when you can expect payment. If the client doesn’t follow through, send a demand letter via certified mail.
The paper trail gives you more leverage to hand off the collections to an agency. It can also give you more leverage if your case winds up in court.
How to Hire a Collection Agency
You did all you could, but your client ignores your calls and won’t pay you. Now, it’s time to bring in the big guns and hire a collection agency. Here are the steps you need to take to hire the right one.
Only Look at Trusted Review Sites
Collection agencies have a bad rap. That’s because some of them are flat out fraudulent companies. Some companies will go as far as to post fake reviews of their services or post fake negative reviews with their competitors.
You want to find trusted review sites that compare the different collection agencies to understand which ones you should work with.
Work with a Licensed Collection Agency
If you can’t trust reviews, what can you trust to find a good collection agency? Look for an agency that’s licensed to operate in your state.
Each state has its own laws that govern licensing requirements. For example, in Connecticut, a collection agency has to be licensed by the Department of Banking. You can look up a company to make sure they’re able to legally operate in that state.
If you’re in one state and your client operates in another, you’ll want to hire an agency that is licensed to operate in the client’s state or work with a debt collector that can work nationally.
You may be able to get a referral from other businesses or from business organizations. Your chamber of commerce or industry associations like the Association of Credit and Collection Professionals can help you find a few companies to interview.
It may be difficult to get a referral from a colleague or from another business. Money is seen as a taboo topic, especially among small business owners. Many may not like to admit that they had money issues and needed the help of a collection agency.
Interviewing a Collection Agency
Once you gather a few names of collection companies, you can contact them for more information. How your call is treated is a sign of how your clients will be treated.
A collection agency does represent you and your brand. You may not get that client back or want them back for non-payment. That person will still talk about the experience of doing business with you.
At the very least, you want to be seen as professional. A collection agency could suddenly ruin that impression with threats and cold tactics to collect.
You also want to know if they have experience working in your industry or with a company your size. Your industry may have typical pricing and payment structures that are important to know.
The Cost of Hiring a Collection Agency
Collection agencies vary in their fee structures. Some debt collectors will charge a percentage of the amount collected. Others will charge an upfront fee and commission.
You want to be clear as to how much you’re going to pay and when payment is due. You don’t want to have your own account wind up in collections.
Hiring a Collection Agency Is a Good Move
You have a responsibility in your business. You’re responsible for paying your vendors and employees. You’re also charged with providing your clients with excellent service.
You can’t do that if you’re stressed out and chasing clients for past due invoices. You want to be sure that you get paid on time. If you can’t do that on your own, hire a collection agency.
To hire the right agency, you want to work with a company that is licensed and can handle collections professionally and gets a result.
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