A friendly reminder that a customer’s bill is past due is the first step in collecting your payment. However, what do you do when reminders aren’t enough?
Dealing with non-paying customers is an irritating business reality. Whether it is for outstanding invoices or missed payments, when customers fail to live up to their end of the bargain, your business and cash flow can suffer.
When standard internal debt collection procedures don’t work, collections agencies are meant to provide an outsourced solution to collect outstanding debt. However, not all collections agencies are created equal. With more than 4,000 licensed debt collection agencies operating in the U.S. alone, it can be challenging to decide who to work with and who to avoid.
If you’re considering hiring a collection agency, keep the following tips in mind to make your choice less daunting.
1. Choose a specialized debt collection agency
Collections agencies should be selected based on their specialization. For instance, if you own a medical billing company and need help collecting outstanding accounts, a collection agency with healthcare experience and expertise is a smart place to start. Each industry has its own set of systems, rules, regulations, and terminology, so focusing on an agency with a specific understanding of these aspects is beneficial.
2. Inquire of their use of advanced technology and data security
In today’s business environment, technology is a necessary part of operations for many different companies, collections agencies included. The right software makes the process of collecting and recording payments faster, more accurate, and most importantly, efficient and secure.
Collections agencies should have certain systems in place to make the collection process as smooth, transparent and productive as possible. Meanwhile, technology should be in place for the collection agency to meet security regulations that cover consumer information and payment security respectively.
3. Confirm licensing, bonding, and insurance
Many states require collections agencies to be licensed to do business in a specific location. The licensing process helps vet debt collections agencies to ensure compliance with federal and state debt collection laws. As part of this process, collections agencies must also have a surety bond to protect consumers and business partnerships. It acts as a safeguard and acknowledgement that the collection agency will follow the rules and regulations of their professional license. It also affirms the agency will reimburse the surety company if they pay out on a bond claim.
Insurance may be another requirement for a collection agency, such as general liability coverage or errors and omissions liability insurance. Ask your potential collections agency if these requirements have been met, and verify where the company is licensed to ensure your business is not at risk.
4. Ask for business references and verified association membership
Another way to vet a potential collection agency is to ask for business references and check association membership. Business references can provide a clear picture of how a collections agency works with companies in a similar field, how successful it has been in recouping outstanding payments, and how it interacts with customers.
Association membership is not a requirement for collection agencies, but it does show the business has taken an extra step toward creating a strong reputation. Ask the agency for business references at the start, and check if the business is associated with the Association of Credit and Collections Professionals (ACA International).
5. Request details on fee structure
Finally, determining if a collections agency is the right fit for your business requires a close look at its fee structure. Several factors drive what debt collections agencies charge to businesses, including how much debt is in a portfolio, the type of debt, how much work will be required to collect on that debt, and the agency’s experience in doing so.
Many collections agencies provide a tiered fee structure based on these factors, and a charge is only processed when debt is collected. As a business, it is necessary to review the fee structure to identify how much you will gain as a return on your investment in the collection agency’s work.
Hiring a debt collection agency
Hiring a debt collection agency can be the right choice for small businesses that need help in recovering unpaid customer accounts. However, it is essential to review its operations before making a firm decision.
Ultimately, the debt recovery and collection agency you choose should be specialized and exceed the highest standards in data security, advanced technology, quality assurance, regulatory compliance, and offer a competitive fee structure.
Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. Eric has years of experience in the surety industry and has held several different roles within the company. He is also a contributing author to the surety bond blog.