Collecting on outstanding receivables from other businesses that your company extends credit to can be challenging. Many companies will try to collect funds all by themselves but find that they leave a significant portion of their receivables uncollected. This is where they can turn to a debt collection agency that can help them to recover funds from their commercial customers.
There are many different companies out there that offer these debt collection services and a wide range of success that can be achieved when you do so. There is also a wide range of styles of arrangements that these debt collection companies operate under and finding the right option for your business requires quite a bit of work to engineer. Here is what you should focus on when trying to collect on outstanding commercial debt.
What is the Nature of Your Receivable Problem?
Not all companies have the same problem with their outstanding commercial debt. Some companies have customers who will pay late and need to be prodded to pay, while others have a large number of defaults. Some companies suffer from poor billing practices which harm their customers as customers will commonly not pay invoices that are incorrect or wrong. Other companies are inconsistent with when they send out their invoices and suffer from poor collections as a result.
Companies should investigate their receivables issue and understand why they are suffering from poor collections before hiring a debt collection company to assist them with their commercial collections as the solutions out there can be very much different depending on the exact problem that a company is facing.
Who is on Your Internal Team?
Does your company lack a qualified and dedicated commercial collection person and are you looking to outsource that role in total, or are you just in need of someone to assist you in collecting those debts that get old and are hard to collect. Some companies will prefer to outsource their entire collection process while others will just look to outsource specific portions of it. It is a good idea to understand who is on your internal team and what aspect of your collections process would you like to fully outsource or keeping in-house at least partially.
Collection Agencies for Full Outsource
One collection process that is typically outsourced involves use of legal letters to threaten customers who are not paying. After receivable gets escalated and many attempts are made to collect them, a company may want to issue a legal warning to its customer to pay their outstanding balance. A third-party may be the best option for doing so as it will reduce the potential for loss of customer but help to ensure the receivable is collected.
Factoring is another situation where a debt collection company can assist. When you factor your receivables, after you make a sale, it becomes the collection companies responsibility to collect it, although they obtain the benefits of collections and you lose a certain percentage of your receivables to the factor. Still, many companies prefer factoring as they develop a reliable source of collections and allows them to plan around. While there is a very real cost associated with factoring receivables, it is often Made up for by being able to keep a trimmer accounting staff on hand where the accounting staff can focus on improving sales And making other processes better than having to track down customers for payment.
Regardless of how you want to structure your arrangement, you should choose a commercial debt collection company that is experienced and dedicated to the success of your business over the long term. Care should be taken for finding a collection company that is the right size for your firm and has appropriate escalation points to help your company to get the help needed to push cash flow into your business.