Business owners hire collections agencies every day. Some business owners decide not to hire a collection agency. What are the reasons that business owners decide to hire or decide not to hire a collection agency? Which are good reasons, and which reasons are bad?
Good Reason: Hire a collection agency to find customers you can no longer locate
The internet, especially social media, provides a good deal of information on people. However, debt collection agencies have specialized tools and can take research to the next level. They specialize in finding people and their assets. The process is called skip tracing and it is critical to successful debt collection.
Good Reason: Hire a collection agency to save you time.
Collecting money takes time. All business owners need more time. Let a commercial debt collector help you so that you can spend your time growing your business.
Bad Reason: Hire a collection agency to get back at non-paying customers by trashing their credit.
I get it. When someone does not pay you, you are angry. Your trust has been betrayed. Some business owners believe the correct response is to submit the file to a collection agency to get the debt reported to one of the major credit rating bureaus. The fact is that while credit reporting can serve a purpose in debt collection, it is only a small part of the process, and due to changes in the law, the impact of credit bureau reporting is lessened. Reporting one bad debt is not going to ruin anyone’s credit. And reporting a debt alone rarely results in payment.
Bad Reason: Do not hire a collection agency because you do not want to pay the fee.
Collection agencies work on a contingency basis That means that they take a percentage of whatever they collect for you, but charge nothing if they are not successful. Which makes more sense, to recover something or to keep holding onto to an unpaid balance, hoping that it will collect itself? Don’t like the rate? Well, the worst rate is zero, which is what you will get if you do nothing.
Bad Reason: Do not hire a collection agency because you are afraid customers will be angry and disparage your reputation online or in the community.
Are you afraid that customers will give you a bad google review if you send their file to a collection agency? I have never seen this happen, but let’s suppose it did. If a customer did actually admit online that they have not paid you, what sorts of new customers would be discouraged from such a posting – those looking to avoid paying their bills?
I once had a dentist tell me that he did not want to send patients to a collection agency because he did not want to be known as, “that dentist that sends patients to collections.” A few years later, he came to back and hired us, because he had $50,000 in bad debt and could not pay his bills. To avoid being seen a a bad guy, he had become the dentist no one paid – literally. One non-paying patient referred another, and so on.
Bad Reason: Do not hire a collection agency and just write off the debt.
Many small businesses utilize cash accounting and gain no tax benefit from writing off bad debt. Even larger businesses that can write off bad debt must show an effort to collect it before they write it off and often do not receive much tax benefit. A bird in hand….
BEST REASON: You should hire a collection agency to get paid. Period. End of story.
There is an old saying that the best revenge is living well. I don t believe it should ever be about revenge, but in this case, your best outcome (or revenge, if you must) is getting paid. What actions your collection agency takes to contact your customer and convince them to pay should be your only consideration.