When Should Your Business Hire a Collection Agency?

If your customer debt is piling up and you're wondering if a debt collection agency is in your future, this guide will help you to decide.

There's nothing more stressful than trying to collect a debt from a client, especially if it's one you've had a good working relationship with.

Debt Collectors

You want to give them the benefit of the doubt, but you're getting to the point where they haven't made a payment in months. It's time to get paid what you're owed, but you're worried about ruining the relationship.

Nobody wants to have a difficult conversation with a business associate. If you're tired of hounding your clients to make payments, it may be time to hire a collection agency to handle settling your debts.

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Businesses that haven't used a collection agency may be worried about sending someone to collections. It may seem “extreme”, but the reality is that a collection agency can be very helpful to businesses of all sizes.

If you want to learn more about collection agencies, you've come to the right place. We're going to teach you about situations where your business can benefit from using a collection agency, and why so many businesses benefit from using them.

4 Situations Where You Need to Hire a Collection Agency

Bringing on a collection agency to settle some of your unpaid debts can be a very big decision. You aren't sure if you're ready to send someone to collections, and you're concerned you could be overreacting about a few late bills.

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If you're on the fence about bringing on an official collection agency to help out your business, we're going to help add some clarity to your situation.

If you happen to find yourself in the 4 following situations, know that hiring a collection agency is the right thing to do.

1. Your Cash Flow is Affected By Unpaid Bills

This should be the biggest sign that it's time for a business to hire a collection agency.

A business can't flourish, let alone keep the lights on if they see their cash flow slowly dry up. You can't put your business or employees in jeopardy because a few of your clients can't pay the bills on time.

Improve cash flow

The time for friendly phone calls and timely email reminders should abruptly come to an end when your cash flow beings to suffer. A debt collector can take over and do whatever they can to make sure that you're paid ASAP.

2. You Feel You're Getting Ghosted

A client that used to be incredibly responsive seems to have disappeared once you started to send them bills.

You've sent countless emails that go without a response, and you've left so many voice mails that their inbox is full. It's your nature to give someone the benefit of the doubt, but you're starting to feel like you're being purposely ignored.

Sometimes it's possible for even the biggest business to forget to send an invoice or pay a bill, but there's only so much room for

Collecting money that's owed to you can be difficult with friendly business relations. You don't want to assume that they've been ignoring you, but you also can't afford to have them not pay their bills.

Don't get ghosted

3. You Know They Can't Pay

Instead of a lack of clarity from your client, you actually have the opposite problem. Your client isn't attempting to hide from you, they're very upfront about the fact that they don't have the money to pay you.

They may have had a rough quarter and need some time to catch up on their bills. It's possible that they're downsizing people in their own company and don't know if they can afford to keep their doors open.

Sometimes bad things can happen to usually good clients, but that doesn't mean that their financial obligation to you can change in any meaningful way.

A collection agency can help deal with the client's lack of money in a simple and direct way. They may be able to suggest payment plans or think of other ways to get you the money they need.

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4. Your Accounting Department is Swamped

In the past, it wasn't difficult for your accounting department to keep up with a few delinquent accounts. You could easily have an account representative or someone in accounting send a friendly reminder about an unpaid invoice.

Unfortunately, the present is a very different story.

Maybe you have far too many past due accounts to keep track of and it's getting difficult to juggle everything. Or it's possible that your department is too busy or too small to stay on top of collections like they were able to do in the past.

Accounting Department

How Much Does it Cost to Hire an Agency?

This may come as a surprise, but hiring a debt collection agency can be much less expensive than you'd think it would be.

How much time and effort are your employees are putting into collecting debt from your clients?

Take some time to think about how many emails they send and calls they make to attempt to collect a debt. Then think about how often they have to check in on collection efforts, and how much time that takes away from their regular tasks.

In some cases, your company could end up losing money when you're trying to collect a debt. All of the time spent on collection could be spent on other paying clients or in finding and maintaining new business.

cost to hire collection agency

When you really take time to calculate the true cost of everything, it can be cheaper to hire a collection agency. They won't take any time away from hard-working employees, and they'll be able to do a better job of collecting debt.

Some companies have plans where they only get paid when they successfully collect a debt. Their fee comes from a small portion of the overall debt they were able to collect from your client.

Hiring Collection Agency

How Do Agencies Collect Unpaid Debt?

On the surface, a collection agency's attempts to collect a debt may not seem too different from ways you've tried to collect it yourself.

They'll reach out to people via phone, e-mail, and formally written notices in an attempt to collect the debt. If a debt cannot be paid in full, they may negotiate a reduced rate for the debtor to pay back.

In some cases, some collectors may conduct in-depth searches for information on a debtor's assets like bank and brokerage accounts. This is done so they can more accurately determine if a debtor is able to repay what they owe.

Paying Debt Collectors

Some collectors can report delinquent debts to credit bureaus as a way to encourage debtors to settle debts. Collectors do have access to more collection resources than you do, but there are some things they won't be legally allowed to do.

It's important to note that even though collectors can have access to bank account information, they cannot withdraw funds on their own or force debtors to pay without a court order.

They can, however, help you make a solid case in court in case you need to escalate matters.

Debt collectors can also not harass people that owe you money. Professional collectors will have no issue respecting a debtor's privacy while they try to pursue a debt.

Can I Sell Company Debt to a Collection Agency?

Selling debt to a different collection agency can be a way to recoup losses if current debt collection techniques aren't working.

You may not be able to personally sell the debt to a collection agency, but the agency you use may choose to sell that debt to a different agency if they have difficulty collecting.

Selling Company Debt

Any debts that are regulated by the Consumer Credit Act can be sold or placed with a different company any time a debtor stops making payments.

Typically this would apply to things like loans, overdrafts, credit cards, store cards, and other consumer purchases.

It's possible that the agency you use may choose to sell the debt, but there isn't a guarantee. The stipulations of the contract you signed with the debtor or the collection company you're working with may not allow selling to occur.

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When businesses choose to hire a collection agency, everyone involved wins. Businesses can get the money they're owed, and debtors can find a way to settle their debts.

Debt collection is only one of the many professional services we're knowledgeable about. If you want to learn more about the best ways to handle payroll, HR, and other business services, we're here to help.

Whether you want to learn more about a specific service or just want to see what we can do for your business, be sure to contact us today so we can start a conversation about the best way to help you.

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