At any given time, thousands--even millions--of dollars are tied-up in overdue debts. This continual cycle can bring organizational cash flow to slow trickle. For small to mid-sized businesses navigating the treacheries of a challenging economy, uncollected debt has the potential to capsize the operation.
According to Cortera, a database entity containing information on virtually every private and public U.S. company, outstanding collections has reached new heights. It cites a Commercial Collections Agency Association report that $4.2 billion in commercial accounts were placed for collection in the first quarter of 2009 alone; that's a 34.6 percent increase over the first quarter 2008.
Collection Agencies and How They Function
Commercial collections agencies take over past due accounts on behalf of a business that extends credit to its customers. For a nominal percentage of the debt, the agency will make periodic contact with borrowers and record the results of each attempt. The benefits of hiring third-party collections agencies include:
- Improving cash flow by reducing Days Sales Outstanding
- Addressing issues with customers in a timely manner
- Handling new accounts before they become delinquent
- Preventing waste of internal resources on collections activities
Finding the Real Value in Commercial Collection Agencies
When a business finds itself at the stage where outsourcing debt collection is the next logical step, creating a selection strategy is paramount. It's important to keep in mind that a collections agency is in essence an extension of the company--businesses should choose wisely. Commercial Law League of America General Counsel Scott Jefferson reveals the key questions that companies evaluating potential collection agencies should be asking:
- Do They Specialize? General commercial collections agencies might not understand the subtle nuances of a particular industry and any attempts at collections could prove fruitless; specialization is always preferred
- Do They Utilize Technology? In virtually every collections scenario, time is of the essence; potential agencies should have the technical savvy to employ email, fax, and Web-based solutions in their dealings
- Do They Handle Volume? Some features to look for include how many accounts can they take on and how many account reps will be assigned to a single collection
- Do They Communicate Well? Again, borrowers are reluctant to satisfy debts with a collections agency that relies on heavy-handed techniques; subtle actions go much farther than most anticipate
The bottom line is that commercial collections agencies bring an expert perspective to the process. They possess sophisticated resources and compliance knowledge to lawfully recover dues from borrowers. Perhaps more importantly, they can accomplish this mission while leaving the commissioning business free to concentrate on growth.
Commercial Law League of America