“Ask Cash Flo” is a credit and collections advice column for small businesses. Questions may be submitted via email to flo@askcashflo.com. Follow Cash Flo on Twitter @AskCashFlo. Cash Flo reminds readers that she is not an attorney and nothing in this column should be construed as legal advice. As Cash Flo always says, “When in doubt, consult your attorney”.

Dear Cash Flo, 

I have a small business and my profit margin is pretty thin. When customers do not pay me, it really hurts, but hiring a debt collection agency and paying them to get the money hurts too.

The collection agency told me that I don’t have to pay anything to them up front, and when they get the money they would take part of the money they get. Why do I have to give them part of “my” money?

Befuddled in Biddeford

Dear Befuddled,

I am sorry that customers are not paying you, but I let me remind you the agency that works to recover bad debt for you is a business and in order to stay in business, they have to make money too. When you place an account with a collection agency, you do so because a customer has defaulted on their obligation to pay you. The receivable you show for that customer cannot be used to pay your bills or grow your business.

Your collection agency turns receivable (nothing) into cash (something) for you. The effort they put into your file is a risk they take, because there is no guarantee that your customer has the ability to pay, and since you are not paying anything up front, you have no risk. So, I would not look at it as your having to give them part of “your money”. You had nothing, now you have something. Don’t let your disappointment over non-paying customers transfer to your your agency, as they are your ally – they did not cause the debt to occur and exist to help you.

There are many ways that you can minimize your collection agency fees and improve your results. Work closely with your agency and keep the communication flowing and you will have a valuable long term business partner

Yours truly,

Cash Flo

P.S.  There are many ways you can minimize the number of accounts you send to collection. Here is a free tool you can download to help you!

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