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Collection Agency: Debunking 5 Common Myths

Thinking of hiring a collection agency? Before you start, here is the truth behind some common myths.

Myth 1: Sending delinquent customers will result in a loss of business.

First of all, do you really care about losing customers who owe you money? We understand that you may have customers who are habitually late, and if you send those customers to a collection agency, tell your agency that these are customers you would take back if they settle their outstanding balance.  Work with your agency to create a loyalty program that brings customers who got off track back into the fold. You must, however, revisit your credit limits for customers who have previously gone to collections. Lower their credit limit or better yet, require payment up front.

If you are worried about the “message” that sending delinquent customers will send to the marketplace, perhaps you might adjust your thinking and wonder what sort of message you are sending if you continue to allow people to obtain for services or product without paying you.

Myth 2: All collection agencies can do is make phone calls.

Collection agencies do make telephonic contact, but they do so much more. In addition to phoning, and agency will send legal notice that the file has been referred for collection, which often will secure payment. Agencies also have specialized tools to locate debtors and their assets, which is a very important part of bad debt collection.

Myth 3: Reporting debts to a credit bureau is the most effective tool agencies have.

Credit bureau reporting is just one tool, and should not be the only thing your agency does to collect your bad debt.  In fact, you may want to rethink if you want report delinquent customers at all – it is not always effective, and could be risky.

Myth 4:  It is the job of a collection agency to harass people who don’t pay their bills.

It is the job of a collection agency to recover money for you. Yes, there are bad players in the debt collection field, just as there are bad players in any industry. If you are going to hire an agency, make sure you check references. Also, make sure you communicate the type of approach you would want to your agency.

Harassment and threats are never appropriate, and frankly, the best results come with respect and understanding. Your collection agency should be persistent, but professional, and always act in compliance with applicable state and federal laws governing debt collection, such as the Fair Debt Collection Practices Act.

Myth 5: Collection agency fees are too expensive and you are better off just taking a tax write off.

What is expensive is the time and energy you spend chasing delinquent customers when you could hire someone to do it for you. What is expensive is the loss of use of the money that people owe you, or the interest rate you will have to pay to borrow money to boost your cash flow.

There is considerable competition in the field. While you should never decide solely on the lowest rate, you can certainly find an agency that is competitive that can get results for you.

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