By : Mark Quigley
Unless you operate your business on a cash-and-carry or barter basis, eventually you’re going to accumulate some unpaid debts from customers or other parties such as vendors who refuse to or simply cannot pay an invoice. Eventually, as this number adds up, you’re going to look into hiring a partner to help you recover that unpaid debt. After all, you performed your work or provided your goods in good faith, and no matter how sympathetic you may be to the situations of others, you deserve to be compensated as agreed.
The question then becomes: How to choose a debt collection agency to partner with? There are lots of agencies to choose from but making the wrong decision can damage your reputation and actually end up costing you money. Here are a few tips on how to choose the right debt collection agent.
1. Make Sure they Are Licensed & Reputable
Whatever the licensing requirements in your local area, any legitimate debt collection agency should prominently display their certifications. Hiring an agency that is not properly licensed can make you liable for any problems that arise from their activities. At the same time, make sure the agency you hire does not engage in any illegal or unethical practices. Often a quick Internet search can reveal obvious problems in the form of large numbers of complaints from people contacted by the agency, or even actions taken against them by governmental agencies.
2. Know Your Costs
Debt collectors work in a variety of ways, from outright purchase of your debt for a percentage of its total value to an hourly fee-based system. The right plan for you depends on your needs. If you’re looking to recover bad debt because of a cash-flow problem, selling your debt for a fraction of its potential value gets you a cash infusion but fixes your recoveries at a low point. Paying a commission on recovered debts can bring a much higher proportion back to you, but may be slower, and if the agency is unable to recover most of the debt you can end up with nothing back for it. Another consideration is the remittance policy of the agency: What is their payment schedule to you? Make sure it’s within a reasonable timeline, and that it’s in writing.
3. Make Sure The Agency Has Insurance
A reputable collection agency must have Errors and Omissions insurance to protect itself and you (by extension) from lawsuits levied against it by the debtors they contact. The agency you’re considering should be willing to show proof of insurance upon request. This insurance protects you just as much as it protects the agency. Operating without it can be very costly if the agency makes an error or breaks the law in their efforts to recover your debt on your behalf.
Debt collection is never guaranteed. Some debtors steadfastly refuse to pay a debt no matter what, and some will, of course, declare bankruptcy or suffer other financial cataclysms that put their debt beyond your reach. A good first step is hiring the right debt collection agency. Then, you can stop worrying about your unpaid debts and get back to your business servicing the customers who do pay you on time!
Mark Quigley is the owner and director of Darcey Quigley, an independently owned debt recovery company in the UK specializing in commercial and international debt recovery.