We all expect customers to pay on time, but unfortunately, this is not always the reality.
Using a debt collector has some obvious advantages, but It’s wise to consider its potential disadvantages, too.
Let’s look at the advantages and disadvantages of using a debt collection agency.
Successful and Faster Debt Recovery.
Recovering past due debts can be complicated, but hiring a debt collection agency makes people pay their debts faster and more often. This is because debt collectors are experienced professionals trained to persuade debtors to pay.
Remove the Hassle and Heat from your company.
Reaching out to customers about their overdue balances is not always very comfortable, and no one loves the job of arguing with clients who refuse to pay. When you hire a collection agency, you free yourself from the unpleasant task, giving yourself time to focus on what’s important – your business.
Debt collectors have tools and resources.
“Effective debt collection agencies,” says Steve, a team supervisor at Fair Capital, “will use advanced skip-tracing technology to help locate debtors. Debt collection agencies will also report delinquent accounts to the credit reporting agencies, which may negatively affect a debtor’s credit score. Debtors will often make arrangements to pay their debts to avoid damage to their credit.”
Numerous federal and state laws govern the debt collection industry, and well-informed debtors won’t hesitate to sue if they know a law has been broken.
Debt collection agencies are well-versed in these laws and rules for each individual state, as well as federal laws.
Hiring a collection agency will mitigate the legal risks involved in trying to collect the debt on your own.
Shifting Focus Back to What Matters
Letting a collection agency manage debt will allow you and your employees to focus on your core business activities instead of managing debt collection efforts.
A collection agency can take care of everything for you. Filing a lawsuit to collect on a debt is just part of the collection process. Collection agency’s know what they are doing and will have a greater chance of success than if you hire a lawyer yourself.
Additionally, with only around 80% of judgments being collected, a collection agency will know when it is practical to file a lawsuit. To deliver a complete service, a collection agency will utilize tools to enforce the judgment efficiently.
Debt Collectors Charge for Their Services.
The cost of collection services Is something to consider. The cost of employing a collection agency may range from 20% to as high as 45% of the amount collected if working on a contingency model. However, most companies believe collecting some debt is better than losing everything owed.
Client Relations Could Be Affected.
Outsourcing to a debt collection agency can cause a negative reaction from clients; receiving a call from a collection agency can put a bad taste in a customer’s mouth, especially if the agency lacks empathy skills. Avi, the CEO of Fair Capital, often says, “The two vital components of a debt collection agency are Compliance and Respect.”
The Bottom Line
There’s no one-size-fits-all answer to the debt collection agency debate; some businesses will benefit more from bringing in outside help, and some less.
With all this in mind, it is clear that drawbacks can be reduced by being mindful of which agency you hire.