Collection Agency Basics

Written by Takara Alexis Thursday, 22 September 2011 13:20

A simple definition for a debt collection agency would be a business that collects unpaid, past due debts for other businesses. A company you work with will usually send your account to a debt collection agency after you fail to pay your bill for a number of months. Debt collection agencies use various methods to get you to pay your unpaid debt, they include calling you at home and work, sending letters to your home, listing the debt on your credit report, and sometimes even filing a lawsuit against you.

A simple definition for a debt collection agency would be a business that collects unpaid, past due debts for other businesses. A company you work with will usually send your account to a debt collection agency after you fail to pay your bill for a number of months. Debt collection agencies use various methods to get you to pay your unpaid debt, they include calling you at home and work, sending letters to your home, listing the debt on your credit report, and sometimes even filing a lawsuit against you.

Some collection agencies will offer flat fee services, but most do operate on a contingency fee basis. Depending on how old the debts are and how much business a creditor has to offer, the collection agency will adjust the fee amount. The less time the debt has been outstanding and the more outstanding accounts receivable a business has, the lower the percentage the collection agency will charge for collections.

There is a standard rate in the collection agency world, which is 30 percent for business to business accounts. Consumer accounts are even higher sometimes around 40 percent. This may seem like a lot but collection agencies have knowledge and experience that business owners don't have, and hiring one can be well worth it if the outstanding accounts receivable warrants it.

The best way to ensure getting paid for the services you have provided is to establish proactive policies and procedures, cutting down the number of delinquent accounts receivable your small business has to deal with. Techniques such as having credit policies in place, performing credit checks on customers and clients, having a partial payment policy and being clear and blunt about your payment expectations both in person and on your invoices will be helpful towards ensuring that you get paid and your small business does not get stuck with a lot of bad debt.

Lastly, the more quickly you follow up on a missed payment, the better your chance of getting your money. So set up a system for flagging late payments if you need to and a standard procedure for contacting the customer or client when his or her payment isn't on time.