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Pittsburgh Business Times January 2003
Help your collection agency do job by taking active role in the process. Mie-Yun Lee
No matter how many customers you have, your business will not succeed unless you are paid for what you provide. A collection agency can help make sure your cash continues to flow.
Before a receivable even lands in the hands of a debt collector, establish internal collection procedures to help prevent debts from becoming stale. This process should include phone calls and written notices that are automatically sent out to clients at specified times. Keep records of these interactions and periodically confirm the company's contact information.
By the time an account is 60 days to 90 days past due, several communications with the debtor should have already taken place. If your company does not have the staff to continue this full-court press, turn these receivables over to a debt collector.
If you do not pursue these debts rigorously, your chances of getting paid drop quickly. According to a 2001 study by the Commercial Law League of America, after only three months of delinquency, the probability of successful collection drops to 73 percent; 53 percent after six months. Often, accounts are turned over with little more to go on than company names and dollar amounts owed. A complete record should also include the full name of the contact person who has the authority to resolve payment issues, phone numbers, both a mailing address and physical address, and the full names and Social Security numbers of the principals in the company.
Typically, most agencies offer precollect programs, also known as letter service programs, at a flat fee per account. This consists of a series of strongly worded letters that are sent to debtors. Letter service programs can differ, though, so inquire about the specifics.
You can also opt for a full collection service, which includes both written, phone-based and even legal pursuit of debts. These services are always contingent upon collection of the account, with fees ranging from 15 percent to 50 percent of the debt, with the higher percentage charged if the claim has previously been handled by another agency or if lawyers are brought into the mix.
When considering options, beware of collection agencies whose fees sound too good to be true, because you may have to pay extra for collection attorneys. Do not pay in advance for service unless you are paying for court costs and a small retainer to the law firm for legal action.
To maximize your debt collection service's ability to reel in those late receivables, take an active role in the collection process and stay true to your in-house procedures.
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