Should I utilize a collection agency? Looking at your options for past-due accounts

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October 2, 2012 by Rick B

When you think of entities that utilize third party collection agencies, what are the first industries that come to mind?

Healthcare, Government, or Financial Services might jump out at you, or perhaps another industry.

While some businesses are more likely than others to make use of collection agencies, entities in all industries and of all sizes utilize the services of collection agencies.

Simply put, if you extend credit to your customer, you will eventually have to decide how to handle past-due accounts, it is unavoidable.

So you’ve established something needs to be done about your mounting list of unreturned invoices or billing statements, now what? The first step commonly revolves around sending letters or making phone calls in-house.  These efforts can result in some payments; the downside being someone is usually taken away from their daily activities, causing them to fall behind on other responsibilities.

Suppose you don’t mind putting someone in-house to work on collecting past-due accounts. After all, collecting money you’ve earned is vital to your operations. The first question that comes to mind, “Has this person been trained to collect on past-due accounts”? While sending out letters and dialing phone numbers certainly do lead to some payments, the sensitive art of debt collection is far more in-depth.

What happens if someone has moved and your address/phone number of record are no longer accurate?  Tracking down this information can be cumbersome if you do not have the right tools available.  Collection agencies employ a sophisticated procedure known as “skip-tracing”. Skip-tracing is a multi-faceted process that cross-references information on a debtor against several databases and websites.  An experienced collection agency will have an established skip-tracing process that has been developed through years of experience in the industry.

And I digress… Back to the question at hand, should I be using a collection agency?

What I’ve been getting at is collection agencies can and should be utilized as one of the tools used to manage your revenue cycle.  Skip tracing is just an example of one of many effective processes utilized by collection agencies.  Just like other industries, collection agencies have developed and evolved their processes over time, in an effort to maximize their productivity and results, results that can add dollars to your bottom line.

If you extend credit or have past-due receivables, chances are a third party collection agency could be a valuable service to you. Many collection agencies work on a contingency basis, meaning if they don’t collect, they don’t get paid. Whatever your process has been for handling bad debt now is a good time to review your processes and the results they are achieving for you.

Check back with us next week when we discuss how to find the best collection agency for you.

As always, any feedback is welcomed and appreciated.


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