There are multiple stages of debt collection, and the first stage starts with you, the business owner. Before hiring a collection agency, you should evaluate your debtor's situation. Take notes on how many days overdue their payments are, how much they owe you and how much you are willing to settle for. Keep in mind that the longer you wait to collect debt, the harder it becomes to collect.
When you begin to speak with your debtor, maintain good customer service and keep phone calls short to avoid harassing them. After all, they may still be a customer of yours, and you may need to keep a cordial working relationship. If they remain unresponsive to your outreach attempts, the next step is to send them a formal demand for payment. This is a written document that outlines the debt owed in detail. This letter is typically effective in resolving debt issues. A formal demand letter is also useful in the case of filing a lawsuit, and it is sometimes legally required.
If you are unable to resolve the debt collection process on your own, such as by phone or formal demand letter, you may find yourself looking into the next stage, analyzing the benefits of hiring a debt collection agency. Agencies can let your nonpaying party know you mean business.
The cost of hiring a collection agency varies, although the price structure is typically either percentage-based or a flat fee. When looking for an agency, do thorough research to verify that the company is legitimate and accredited, has positive ratings, and abides by laws like the Fair Debt Collection Practices Act.
October 2019: Another thing you may want to ask the collection agency is how it plans to handle the Consumer Financial Protection Bureau's proposal about allowing digital recovery notices. In 2019, the U.S. Court of Appeals ruled against the CFPB's attempt to permit debt collection agencies to send collection notices to consumers by digital means (e.g., hyperlinks, emails and text messages). Some agencies may not be in compliance with these regulations, which could land your business in hot water if you work with them.
November 2019: According to recent reports, the number of top-level collection agencies is slimming down. This can be great for you as a consumer, as it means better options available. However, with the increase of legal demands, mergers, closures and acquisitions, it may be beneficial for you to pay extra attention to the reputation and resistance of the collection agency you are considering hiring. This can help to ensure you choose an agency that will be around long enough to resolve any long-term collections you may need.
After narrowing your search down to a few credible agencies that serve your industry and location, compare important features like skip tracing, litigation, demand letters, pre-collection and free final-notice forms. The last step is hiring the agency of your choice. The best agencies allow you to add your accounts directly through a simple online portal.