Most businesses make the mistake of waiting way too long before handing over their accounts receivables to a commercial debt collection agency. For every 30 days you delay, the chances of recovery go down at least 10%, so it actually pays to outsource sooner rather than later.
Collecting the outstanding accounts for your company is an important financial step that adds to the cash flow and helps keep your company afloat. So it needs to be treated with importance.
Here are the early warning signs it may be time to send your debts to the debt collector:
Customer avoids contact attempts
This is when you need to send them a strong message that you mean business and that you want to get paid. Avoidance is not acceptable and outsourcing to a debt collector at this stage give you the benefit of the “third party affect”. This is simply the advantage of having a completely new party – the debt collector- acting on your behalf.
Refuses to sign a personal guarantee
This should be a big red flag, if your customer is not willing to guarantee his/her own company, ask yourself if you really want to do business with them.
Customer breaks terms of the original agreement
Another red light. Depending on the terms, but again, outsourcing to a debt collector at this stage sends a strong message to your customers that you will not tolerate breaking of terms. Your debt collector should be able to handle any of these contractual disputes on your behalf, if they are any good.
Customer breaks their first promise to pay
Do not give them a second chance. Unless you are a bank or are charging interest, why would you give them an interest-free period of payment? This does not make sense. If they have reneged on a payment agreement once, the chances are highly likely they will do it again.
Customer only makes partial payments to buy more time
Unless you have agreed to this, outsource the debt. Debt collectors are much better positioned to handle these negotiations. We have automated systems to handle instalments and promises to pay.
Customer ignores demand letters
A good debt collector will act as an extension of your company and your brand, so their letters of demand should simply follow on from yours, however, will be more assertive and you will have the benefit of the “third party effect”.
No one has the time to follow up the outstanding invoices
Many companies do not have the time to collect their own debts so why not outsource this function from day one? It makes sense to give it to a debt collection professional, so you can concentrate on what you do best – keeping your customers happy.
Customer has disputed the product or service and refuses to pay
Again, a good debt collector will have a thorough understanding of your product/services, terms of agreement and conditions, so that they will be able to negotiate any disputes or disagreements on your behalf.
You have a business to run. You have better things to do than spending your valuable time collecting past due accounts. Handing your outstanding debts and accounts receivables over to a commercial collection agency is often your best course of action.