Among the various reasons why small businesses fail, one big reason is not being able to collect debts, i.e., clients and customers refusing to make their payments. Forget about running your business successfully, entrepreneurs find it very difficult to even survive. There’s a reason why approximately 30 million Americans have at least one debt in collections.
Equally challenging is what you do after this – How to go about things, and most importantly, when should you hire debt collectors?
Below, we have answered all the questions that must be popping in your head right now:
How much do they charge?
Reputed debt collection agencies do not ask for a fee, upfront, or a price that needs to be paid irrespective of the repayment or not. What I mean to say is, they only charge you if they convert the debt. This process of operation is called a contingency rate basis.
However, factors like the size of the debt or balance, how old the debt is or the age of the debt and other details play a major role. Speaking about the age of the debt, generally, the older the debt, the higher the fee. For the simple reason that debtors who haven’t paid in a long time are less likely to convert, and this makes debt collectors work harder. Thus, my recommendation is to hire them early in the debt collection process to avoid a high collection fee.
Let me explain this to you with an example. For instance, R&R traders owe you $ 200,000. They wrote you a check which bounced, and soon after that, they stopped returning your call or replying to your emails. Now when you seek the service of debt collection service, they might charge you 20% of the debt collected. Later when the collection agencies are successful in realizing the full payment, you are entitled to pay them $ 40,000.
This might seem like a big amount initially, but look at the bigger picture – you have just hit a bonus of $ 160,000!
How do you select a third-party agency?
While there are many debt collection agencies out there, you should always be considerate to a few factors. Let me enlist them one by one –
1. Specialization: Every debt collection agency has its own area of expertise where they have acquired maximum success rates. It’s best to list the agencies that align with your industry and pick the one with the highest success rate.
2. Experience: In the race of experience and expertise, experience always wins. I don’t mean to be harsh to the newbies, but experience always counts. Look out for the agencies that have been operating in the industry for a considerable time and do your own digging to evaluate their history. Check out their social media platforms. LinkedIn can be a good place to start your research. Debt collection companies like cedars business services are always active on LinkedIn. Check their profile there.
3. Licensing: Every debt collection agency is issued a legal license by the government or by any governing body according to the laws of the operational country. You also need to check whether the agency is familiar with the FDCPA and works within its guidelines. This will help you prevent disputes in the future.
If you are looking for some detailed insight, read this.
When is the right time?
Whenever you find a client who is ignorant or refusing to pay, it’s a call that you need specialized services of debt collection agencies. You see, the longer a debt remains unpaid, the less likely it is to be paid in the future.
Apart from that, the age of the debt is also positively proportional to the fees paid to the debt collection agencies – that is, the longer you wait or the later you chose to hire an agency the higher will be the fee.
Although all of us want to realize the payments on our own, especially to save the extra costs, but, well, the world is not a wish-granting factory. If you ask a financial expert, they would advise you to hire them within 30-day delinquency. But if you ask me, unfortunately, there is no perfect time. There is no defined time frame or date, but my recommendation is hiring a debt collection agency as soon as you start to lose track of your payments and observe your customers missing out on due dates. Something is always better than nothing!
I know that it is certainly not a pleasant position to be in a situation as you are in right now, and it can really be stressful. But it’s a part and parcel of business, learn to embrace the lows just like you relish the highs.