Should Your Business Use Debt Collection Agencies?

Article Written By: DavidP.Montana

Collecting debt is one of those tasks that most managers and business owners cringe when they think about. If you're trying to decide whether or not to hire debt collection agencies to take care of it, there's no time like the present. Following is a discussion of the many reasons debt collection agencies can help you and an explanation of what exactly they do.

Debt collection agencies most frequently are companies whose business is collecting debt owed to others. Some of these companies are mainly call centers that get hired by other companies to call on their delinquent accounts in exchange for a monthly fee or, more frequently, for a percentage of any of the money that's recovered.

Law firms that file judgments on past due debts and companies that purchase debt, which means they pay the creditor some percentage of what's owed to them and then go after the debtor themselves with the right to keep what they collect, are also types of debt collection agencies. Keep in mind that no matter what type you use, they all must comply with federal law as well as state law in whichever states in which they operate.

There are many benefits to using debt collection agencies rather than trying to collect on your own debts. The first is that they're skilled in the most current collections practices, which go beyond reminder notices and persistent phone calls. They're also aware of the federal and state laws they're required to operate under, which means no inadvertent lawbreaking that can ruin your collections attempts.

In addition, successful collection activity includes such arduous tasks as negotiating settlements, private investigation and pursing judgments when debtors just refuse to pay. Most companies don't know how to perform all of these tasks, which is the main reason they hire debt collection agencies.

If you do your own collecting, you'll have to pay for private investigative services and for attorney's fees for pursuing judgments. In addition, studies have shown that debtors take calls and letters from debt collection agencies more seriously than calls from the original creditor. They see the step of moving to an agency as a more serious delinquency and are more motivated to clear up the problem.

Because of the way debt collection agencies structure their fees, usually there is very little cost to you up front, and since they have a better track record for recovering money than individual businesses do, in the end you end up with more money than you would if you were doing it on your own. Debt collection agencies are also highly cognizant of the fact that debt must be recovered within a certain time frame because the more time passes, the less likely it is that you will recover.

On the other hand, if your cash flow is poor and it's better for you to get money immediately rather than collect more money over time, a good option is to give your delinquent accounts to an agency that pays you for them up front in return for the remainder of the collections. If not, regular debt collection agencies give you more money in the long run. Both types of debt collection agencies will get you more money than you can on your own, save you time and reduce stress. Regardless of which type of debt collection agencies you decide to hire, they will save you time, money and stress in the end.

About the Author

David P. Montana has published extensively and has experience as a business consultant in collection agency services for three decades.

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