Outsourcing your accounts receivable collections is something most small businesses consider at some point—usually after the first customer stalls on a payment.
Late payments can interfere with your organization’s operations, both financially and logistically. There’s also the inherent unpleasantness of chasing up customers who are reluctant to pay.
If you’re an entrepreneur thinking about handing over the reins to a professional, you should weigh up the drawbacks against the benefits before you commit.
Let’s begin with the positives before delving into the negatives. These are the advantages of outsourcing collections:
Debt collection is a highly-regulated industry governed by the Fair Debt Collections Practices Act. Ignoring or going against these stipulations can have severe ramifications for the employee as well as your organization.
Thorough training is essential as your collections team or employee must be aware of all applicable laws at a state and federal level. Your staff also needs to learn how to use appropriate technologies, process paperwork, and other basic skills to do the job.
A quality debt collection agency has a team of professionals at its disposal. It also has all the necessary resources and experience to train law-abiding collectors.
Training isn’t the only cost your business will shoulder if you manage collections in-house. Debt recovery tools are another fee your company is responsible for. A few examples are items such as software, the salary of an employee, and access to databases to locate delinquent clients.
An agency is equipped to handle every facet of the debt collection process—they have a comprehensive infrastructure that’s hard to match.
As any entrepreneur knows, time is one of the most precious resources—the training and certification process can cost you days, if not weeks. The collections process in itself is usually a rocky one: delinquent clients don’t tend to pay up without a fight.
If you opt to outsource collections, every staff member can work to grow your enterprise rather than dedicate efforts to debt collection. For businesses short on staff, committing even one employee to debt collections can contribute towards productivity loss.
Professional collectors will almost always beat amateurs hands-down when it comes to getting results. Whereas you might only manage to dedicate one person to debt collection, these agencies have entire teams at their disposal.
They also have the upper hand in terms of expertise, persistence, and assertiveness.
On that note, working with a collection agency typically means you’ll recuperate your funds quicker. Unpaid invoices can add up, and you don’t want your business running at a loss indefinitely due to delinquent clients.
Debt collection isn’t only challenging to learn—it can be mentally wearing to perform too. Collection agencies have set training procedures to prepare collectors to deal with delinquent clients.
Outsourcing your collections means you don’t have direct involvement with the process.
By this point, outsourcing your collections likely sounds tempting. Still, you should know about the potential disadvantages before you decide:
Certain agencies charge a flat fee for their services, whereas others will only collect if they successfully recoup the debt. For the latter approach, the agent’s cut can be anywhere from 25 percent to half the invoice.
It’s up to you to determine if the cost is worth the profit. If you sell high-ticket items, this could be the case—if not, training someone in-house might be the better route.
Debt collection agencies have a distasteful reputation that could extend to the organizations that hire them. If word gets out that your business works with one, you could put off prospective clients who fear harassment if they don’t pay immediately.
If you choose to outsource, ensure you select a company with good reviews. Associating your establishment with a vicious or unsavory collector is bound to hurt your image.
Outsourcing your collections as a small business could be a boon or a hindrance, depending on several variables. The quality and cost of the collections agency you pick are two major influencing factors, as well as the average invoice sum.
There’s no doubt that skilled debt collectors can ease the burden of dealing with a delinquent client. However, you don’t want your business to be known as a ruthless collector, particularly amid a financial crisis.