The Small Business Library

March 3, 2000 Overdue Accounts? Consider a Collection Agency What do you do when your client's account is overdue and all of your collection letters and phone calls have resulted in broken promises or have been ignored altogether? If you're running a business, this situation is only too familiar. When phoning and letter writing prove ineffective, you are faced with two choices:  Either write the debt off and forget about it, or look for more serious methods of collecting. Your choice will depend on the circumstances. If the amount and the situation warrants it, you might want to consider using a collection agency. It's true that collection agencies can't do anything that you can't do yourself, but they are experienced in collections, familiar with the consumer laws involved, and quite possibly prepared to be more forceful than you would be yourself. If you decide to try a collection agency, consider the following when making your selection: Many agencies offer a service of Free Collection Demands. This means they send out a pre-determined number of letters on their letterheads. The arrangement is that if the amount is paid in full within the specified time, you owe the collection agency nothing. However, if the debt is not paid, they will initiate collection proceedings at their usual rates. Collection companies charge a fee based on a percentage of the amount collected. These rates may vary anywhere from 20% to 50%. Some agencies specialize in corporate debts - meaning debts incurred by an operating company or corporation. Others specialize in personal debts - meaning those incurred by an individual. Still other agencies handle both. Expect to pay a higher rate for collection of a personal debt than for a corporate debt. Rates for collections of old accounts (i.e. accounts that are over one year old), or accounts that have previously been assigned to another agency will be higher than new accounts or accounts that have not been with another collection agency. If you have only a few accounts per year, an agency that deals primarily with small businesses might be a good choice. Some agencies will accept a number of small accounts at a set fee plus a percentage. If you are able to negotiate lower rates, you must keep in mind that if those rates are too low, the agency will not be able to make a reasonable profit. Consequently, they will limit their efforts. Some agencies have a list of activities that they will take based on the balance to be collected. Ask for this information so you will know what to expect. This will also allow you to compare the services between two competing agencies. Be sure to stipulate that the agency must not incur expenses or initiate legal proceedings on your behalf without contacting you first. Expect the agency to provide monthly reports on their activities, but be reasonable about what you ask for. Would you prefer they spend their time writing reports for you, or would you rather see them spending the time on collections? In this day of global commerce and the Internet, business transactions occur at an international level, and this creates special circumstances when it comes to collections. International collection agencies are able to perform collections in many countries of the world. However, in many cases, these agencies restrict their activities to collecting large, corporate accounts. Finally, remember that laws governing collections and collection agencies differ from country to country and from region to region. The information in this article may not apply in every location. June Campbell is a professional writer whose work has appeared in several international print and online publications. As the owner of her own business, Nightcats Multimedia Productions, she provides business writing services and online sales of business templates and guides from her web site. Her web site offers a number of resources to small businesses - including guides for proposal writing, business plan development and more. Visit June's Website to Claim Your FREE GIFT!