Collection agencies return millions back to businesses every year. A solid collection partner can be an invaluable member of your team.
In order to get the best results, it is important to know which sorts of bad debt accounts you should and also, should not send to a collection agency. If you want to get the best results in your bad debt recovery, then you should know that some accounts should never be sent to a collection agency.
As amazing as it may seem, each of these examples is taken from a real life collection file that has been submitted to us:
1. A bad debt that has been settled and paid for partial payment. When you agree to settle a balance, you agree to take a lesser amount. The settlement could be based on many factors, such as a service dispute, your need for cash flow, or the financial condition of the indebted party. Once the agreed amount is paid you are done. If you change your mind later, you are out of luck. Move on!
2. A payment plan that you no longer wish to honor. Hopefully, you have documented your payment plans. If you have a well documented plan, and the other party defaults, then all bets are off. But if you enter into a payment plan with someone who makes the payments as agreed, you cannot change the deal in midstream. We received a collection account from a client where the debtor was religiously paying the agreed amount. A new credit manager came in and did not think the payments were high enough. It was probably a bad deal, but it was the deal they made, and it had not been breached. In this case, the person in question was highly offended as he was really struggling to make the payments, and felt that he had honored his end of the deal, which he had. Not the kind of customer relations story you want to tell!
3. A debt that has been sold, assigned or factored. Factoring is selling a debt to a third party for a reduced price. It is used to infuse cash into a business. The third party owns the right to pursue the debt,
4. A debt that you cannot document. If you cannot prove someone owes you money, it will be difficult, if not impossible for you to collect money. Need I say it again…contract, contract, contract.
5. A debt based on a personal vendetta. You agree to do work for Uncle Tamoush for a reduced price, or for free. Uncle Tamoush and you have a falling out, and you decide to stick it to him by sending him a bill and sending him to collections. Bad debt recovery is not about revenge. It is about getting you paid.
Which accounts perform best in collections? Generally, any service or product that you have delivered (and can document) can work. If you know that your customer values their credit rating or would possiby need your services in the future, then your collection agency can help provide leverage. Collection agencies can certainly handle some disputes, and but more complex disputes may have to be referred for legal action.
What types of accounts do you believe are best handled by a collection agency? We’d love to hear from you.
Are you looking to hire a collection agency? Download our free e-book to help you choose the right agency.