A lot of people do not consider debt collection agencies while accounting for bad debts. A lot of times, if it is a more significant business, it can be written off or create a provision. However, this is always disadvantageous to smaller firms. The issue is because they would have to work at a loss for a while. Here is where debt collection agencies come in. Companies tend to Hire Commercial Collection Services because they cannot afford to lose that kind of money, or if they have been a victim of fraud. Here are some ways debt collection agencies are advantageous to hire.
The Importance of Debt Collection Agencies
Debt collection agencies are a significant part of the business world, where even though most of the customers will pay their bills on time, some people do not, and need the debt collection agency's services. There are times when people who have not or will not pay their dues, and for those purposes, someone has to visit and collect the debt, or otherwise, the company will have to scramble to account it as a bad debt, which still means the company would lose out on that money.
The Myths about Debt Collection Agencies
We need to address these myths because, generally, media portrays debt collection agencies as shady businesses that have dubious practices. But in reality, your average commercial collection agency is a team of professionals in a formally run enterprise. In such an organization, they treat you just like a regular client. This professionalism is what makes commercial collection agencies good at their job and garner high recovery rates. If you are a small business and you have your doubts about commercial collection agencies, remember to check for a license and other documents that certify their legitimacy, since there will not be a collection agency up and running without them.
How Commercial Collection Agencies Work
When a borrower does not pay his debt or fails at making a scheduled loan payment more than once, the vendor can report this mismanagement to the credit bureau. In the case of fraudulence, the borrower's credit history will take a massive hit, and a collection agency will take over the debt within 3-6 months.
If, after a debt collector's intervention, the borrower pays his debts, then the vendor or creditor pays a small percentage of the funds recovered. As per the original contract between the vendor and debtor, the vendor would pay in portions or all together. If the borrower refuses to pay even after the debt collector has intervened, or is unable to cover the debt at the time, then the collection agency updates the borrowers' credit report with a 'collection' status, which can drop the borrower's credit score. What this achieves is affecting the person's chance of filing a successful application for a loan in the foreseeable future, since the account that has a debt collection on it can have it be like that for up to seven years.
Methods Collections Agencies Use
- Collection agencies do a variety of things including,
- Calling the borrower's personal and official phone numbers
- Mailing them with late payment notices
- Contacting their family and friends, even neighbors, to make sure they have the correct information on them.
- At most, they will visit their house to ensure they pay
Why You Should Hire Them
If your business has a ton of long- past due invoices, and your employees have not been successful in retrieving funds that others owe to your company, then you should look into hiring a commercial collection agency. You can take this step after your employees have tried contacting your clients multiple times, and they have yet failed to pay their dues.
A collection agency does a critical task. They ensure to track the customer so that the company can ask for the outstanding balance. As a result, you free up your employees to deal with core business functions. Additionally, you barely lose any money after having hired and received the payment from the collection agency.
Collection agencies are pretty thorough with their search for your customers, and they are persistent in their attempts to contact them. They even house private detectives who can investigate when a customer seems to have vanished into thin air. Customers who commit fraudulence and try to get away with it can now easily come on the radar of a collection agency.
Hopefully, this has helped you gain a better understanding and insight into how collection agencies work and whether or not it is the option for you when it comes to clearing bad debts.