Are you using a collection agency to get paid or to get even?

There is a scene in the 1993 film A Bronx Tale where the young protagonist complains to the more experienced Charles Palmentieri about a neighborhood who owes him $20.00 and is ignoring his requests for repayment.  Palmentieri tells him to focus on bigger issues and forget about the $ 20.00, that the kid has done him a favor, showing his true colors at the small cost of $20.00

While I certainly cannot advocate letting all debts go, perspective is everything when you are trying to recover delinquent debt. Naturally, the best way to minimize your risk of not getting paid is to take steps to protect your business, including a customer contract that clearly outlines how you expect to be paid, and details consequences for non-payment. Yet, even with the best of contracts, some customers may not pay you, for a whole host of reasons and you will hire a collection agency to help you.

The first thing to remember is that it is not personal. Sure, it makes you angry but you must get your personal feelings out of the way and act to recover the money owed to you.

So, back to perspective. When you are preparing files to send to your collection agency, prioritize delinquent invoices by three factors: 1) the impact to your cash flow and 2) the ability of the customer to repay you and 3) the value of the delinquent customer to your business.

Too often customers will send me the $20.00 invoice like the Bronx Tale boy while hanging on to a larger, more collectible file, because they are either mad at the $20.00 customer or because they do not want to “give away” part of sum owed them in collection agency fees. A collection agency charges a higher rate for older debts, so the delay could result in a higher cost of collection. The customer will likely incur more debt, and if the other creditors act before you – well, you know all about squeaky wheels and grease, right? A customer with a great deal of debt could bankrupt it, or simply go out of business, and you would get nothing.

On the other hand, an angry letter to a customer, or threats you make in anger could not only lose that customer, but could damage your customer service image if an angry customer complains about your over-aggressive tactics. Sure, there are customers you would not mind losing, but make sure your efforts are professional and even handed. Make sure your collection agency understands the kind of image you want to portray in the marketplace.

At the end of the day, stay in close communication with your collection agency and keep your eye on the prize – getting paid so that you can invest your time and money back into managing and growing your business.