Your cash flow will improve greatly if your collection agency does a good job for you.
Here are some more things you can do to help make that happen:
Make sure customers or patients sign a statement of financial responsibility.
If you are already using a customer contract, it probably includes language about what will happen if the customer fails to pay on time. However, you do not need a complex contract. You simple need customers to sign a statement that clearly outlines your expectations for payments and the consequences of non-payment. Something like this:
Invoices are due and payable upon receipt. Any invoice not paid within thirty (30) days will be subjected to finance charge of 1.5% per month (18% annually). You agree that if your files are referred for outside collection, you are responsible for all costs of collection, including but not limited to collection agency fees, attorney fees and court costs.
Similarly, if you are a medical practice, patient should be advised of your billing practices and acknowledge that they are responsible for fees for your service, whether or not they are covered by insurance.
How does this help improve collection agency results? First, it will help the agency resolve disputes. Secondly, a contract can lower your costs of collection.
Stop providing product or service, whenever possible.
Customers who can continue receiving your product or services will be less inclined to pay for past charges. I have a customer, a medical practice that was allowing patients to come back year after year, even if they owed large sums of money. They instituted a policy that any patient with a balance had to at least enter into a payment plan if they wanted to be seen. Their collection recovery increased dramatically.
Let your collection agency know which customers you would take back once they have paid. Your agency can use that information to encourage them to pay.
Don’t send one file or your toughest file to “try them out”
Your agency is taking a leap of faith by working on your file. They do not get paid unless they collect, and if you only give them one file, you may not be able to assess their effectiveness. Also, your agency should feel that you are not serious about a long term partnership.
Delaying sending files only means the debt gets more stale and that you could wind up paying a higher fee. Your agency is taking a leap of faith by working on your file. So, take the leap with them and give them every opportunity to success.
I once took on a new client that had let their bad debt mount up for years, until they had $300,000 outstanding. They finally hired us, and after one month, were disappointed that we did not get it all. Many of the accounts were three and four years old, and required significant research, which takes time. Luckily we were able to explain the process to them and within a few months, and help them set realistic expectations for recovery. It was not long before we began producing monthly checks to them.
Also, listen to your agency if they tell you that taking a settlement makes sense. Remember they are compensated with a percent of what they recover, so if you take less, they will too. Sometimes less money today is better than dragging out payments indefinitely.
Relax and trust your agency do their job.
Calling your agency ever week to check in is not going to help with your recovery. While your agency should update you regularly, they need to focus on collecting for you. Let them do their job. Also, if the customer in collections contacts you, pass them onto the agency.