Collection agencies return millions back to businesses every year. A solid collection partner can be an invaluable member of your team.

To get the best results, it is important to know which sorts of delinquent customer accounts you should and 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 an actual 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 used to infuse cash into a business. The original creditor sells the debt to a factoring company, and may or may not retain the right to recover the money, depending on the type of factoring arrangement. Make certain you understand your obligations under a factoring arrangements
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.
6. A debt that has been discharged in bankruptcy.
7. A debt that has is outside the statute of limitations. The statute of limitations is the period of time a debt is legally recoverable. In Maine, the statute is six years. Each state is different though, so check first. Anyway, why would you wait so long?
8. A debt that is also being worked by another agency. If you want to fire your collection agency, and place the file with another agency, you need to first check the terms of your contract and second, inform them in writing, and get their final report with the correct balance. You can then send it to the new agency.

Which accounts perform best in collections? Generally, any service or product that you have delivered (and can document). If you know that your customer values their credit rating or would possibly 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  be referred for legal action.

If you are not sure, ask your collection agency. Make sure you give them all the information they will need to tell you if it is a good fit.  Most collection agencies work on a contingency fee basis, which means they do not get paid any money upfront, but are compensated with a percentage of any sums recovered. Just because you are not paying anything upfront, it does not mean the collection agency works for free. You want to develop a long-term profitable relationship with your agency, and the best way to do that is to provide the opportunity to collect files that will not only put money in your pocket but also allow the agency to get paid too.