The poor economy, higher unemployment and spiraling costs means that many customers are paying late or do not pay at all. Naturally enough, small businesses are affected by this. They want to recover debt without harming their reputations or resorting to strong arm tactics. This article examines when the time is right to call on a debt collection agency and how to go about choosing one.
Debt Recovery Solutions Using Internal Staff
In house debt collection does not always work because usually this task is given to someone who is not dedicated to the job, in other words, it is given as an extra job to someone employed in another capacity. The person concerned may be nervous in this role or ineffective because there is not a tested system in place that a professional debt collection agency uses for recovery.
Advantages of Using a Debt Collection Agency
- Agencies will generally have efficient systems in place, with a trained and dedicated staff on hand to resolve debt collection issues consistently.
- An agency can resolve issues such as overdrawn accounts, unpaid invoices, unpaid NSF checks and credit card charge backs.
- Funds can get paid over in a shorter amount of time, resolving cash flow issues and saving the business owner time and money by allowing him/her to concentrate on the core business.
- Leaving collection to an agency may be a less stressful option for a small business owner.
- Reputable debt collecting agencies have staff who are experienced and patient at negotiating with debtors.
Pitfalls of Debt Collection Agencies
A third party collection agency that does not operate within the Fair Debt Collection Practices Act (FDCPA) or that uses aggressive tactics to harass debtors into paying can ultimately cost a person his or her business through expensive lawsuits (worst case senario) or ruin the business' reputation. Any agency that uses verbally abusive, obscene language, threats or other demeaning behavior is operating outside of the law.
Choosing an Agency – What to Look For
Work only with a licensed agency that is licensed in all states. Being accused of harassment can mean a business owner can be held personally liable if there is a violation of collection laws.
Ask for references and check up on the company. It sometimes happens that a small business may employ a debt collection agency to recover debt in good faith and then find out that the "reminder calls" are in fact aggressive or threatening calls made to valued customers. It may pay to check up on the type of calls being made by "seeding" employees into the database to ascertain what types of calls are being made.
Ask how fees are structured, either prepaid fees or a percentage of the recovered debts.
It is important that a collection agency is bonded and insured. Should the agency be charged with a lawsuit, make sure it has the financial resources to handle the lawsuit.
The small business owner should ensure that he or she is protected from legal liabilities in writing, as part of the contract, to prevent the owner from being held responsible for the debt collection agency's actions.
Source:
1. debtcollectionsteps.com, information retrieved on 16 September, 2009
2. Lisa Nichols, Editor Suite101, information on outbound call centers, 11 September 2009
More Articles on Debts and Finance:
How to Get Business Loans with Bad Credit
How to Apply for Bridging Loans
Do It Yourself Debt Collection
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