As an account ages, the chances of collecting on it decrease dramatically. It's expensive to carry accounts that you will not be able to collect using the methods at your disposal. It sometimes becomes a better use of your company's time and resources to concentrate on other aspects of your business. You might do this by hiring a credit manager, to do the collection work you have been doing, but as your business grows, you may then have to place the accounts with an outside collection agency. Using a collection agency can be profitable for your business and help you grow. Some collection agencies charge more for older accounts; this is because they are much harder to collect.
A professional collection service can assist you in collecting accounts that remain delinquent. Collectors have a vast knowledge of collection techniques, technology and compliance issues. Using a professional collection service will save time and likely yield better results than you can achieve on your own.
When accounts reach 90 to 120 days past due, it's time to consider placing them with a collection agency. Some people place accounts at 60 days; some wait over a year-it is completely up to you. If you wait over a year it is unlikely you will get paid, but possible. If you are letting something sit on your books and grow older without actively pursuing it, it is worth it to give it to a collection agency. It's not going to get collected if you keep it, and the percentage you will pay the agency will be well worth it.
Look for the following signs that indicate that you may need to work with a collection agency:
A new customer does not respond to the first letter.
For some unknown reason, the consumer will not or cannot pay. Potential losses could be kept to a minimum by prompt referral to a collection agency.
Payment terms fail.
In some cases irresponsible consumers pay when and if they want to. This group is responsible for 25 to 50 percent of the cost of collections. Cost and potential losses are reduced by quick action.
The consumer makes repetitious, unfounded complaints.
Such consumers are often better handled by a collection agency. You have to decide if this is worth your time or would you rather pay an agency a small percentage for that time and still get paid.
The consumer totally denies responsibility.
Without professional help, these accounts are usually written off as total losses. This is when it is good to have a signed credit application or contract and also, if possible, proof of the order and who placed it.
Delinquency coexists with serious marital difficulties.
These also require professional collection help, with the added urgency of obtaining payments before the disappearance of one or both of the responsible parties. If divorced people say the other is responsible, get a copy of the divorce decree, which will state who is responsible.
Repeated delinquencies occur along with frequent changes of address or jobs.
This group is responsible for 90 percent of all "skips." A skip is a consumer who has moved without informing creditors or leaving a forwarding address. The chance of finding a consumer and collecting a debt will decrease over time, so quick action is important. Most agencies provide a skip-tracing service.
Obvious financial irresponsibility is apparent.
In such cases, little hope exists for voluntary payments and a quick settlement.
There is an unauthorized transfer or disposal of goods delivered in a conditional sales contract.
