Collection agencies usually do not charge a fee upfront and charge a contingency rate, which is a percentage of sums collected. Typically, no fee is due if no collection is made. Many small business owners find this approach preferable than spending money on an attorney retainer or spending their own time and money using the Small Claims System. A good collection agency can assist a small business by recovering money that can be put back into the business.

Still, we continue to hear small business owners wonder if hiring a collection agency is “worth it”, or argue that collection agencies are “too expensive”. Here are my thoughts on these issues:

• Accounts receivables are a promise to pay. Delinquent accounts receivables are broken promises to pay. When you hire a collection agency, you have nothing – zero – except a broken promise to pay. Collection agencies turn nothing into something. The “something” can then be used to grow your business or pay your employees.
• Collection agencies take a leap of faith when they work with you. Like you, they are in business to make a profit, and they take on your files without knowing for sure if they can be collected.
• It goes without saying that collection agencies are incentivized to get results for you, because they want to get paid too. Let them do their job. Give them any information that will help them. Respect and partner with your agency.
• Collection agencies get burned along with you if a customer declares bankruptcy. If it happens, there is likely nothing that can be done. If it happens, do not blame your agency.
• There are a good number of excellent collection agencies out there so you should be able to negotiate a competitive rate. DO NOT, however focus only on the rate. Not all rates are the same. Some low rates have hidden fees or mean collection agencies will provide limited services to you. Know what is in your rate!

Money sitting on your books uncollected is worthless to you. If you think you cannot afford a collection agency, I would argue that you cannot afford not to!