If your business has never used a collection agency before—or even if you have—you may be unsure about when is the right time.
How bad do things need to be in order to escalate matters and send an account to collections? In general, not very bad at all. In most Canadian provinces and territories, the statue of limitations on debt is a mere two years. What’s more, you deserve to be paid on time, always, so it should NEVER have to get that bad.
Here are seven sure signs it’s time to send a file to collections:
1. You dread answering the phone
If overdue receivables are impacting your cash flow to the extent your own bills are overdue, you’ve waited too long. Don’t compromise your relationships with suppliers because of issues downstream. It’s time to get help.
2. Collecting bills replaces tasks that make you money
You got into business because you have certain skills and interests. If collecting debt is not among your aptitudes, not only do you have an amateur doing the job, you are wasting time that would be better spent earning new money. Never make the mistake of ignoring the value of your own time when applied (or not) to the things you do best. A good collection agency leverages professionals and saves you money.
3. Your admin staff are frustrated with receivables
Administrators and most bookkeeping or accounting experts are not necessarily any good at collecting debt. Professional debt collectors are highly trained and individually licensed to follow the laws surrounding debt recovery—and know how to do it quickly. It’s never worth harming morale or chancing the loss of good administrators by burdening them with work for which they’re unqualified and that makes them unhappy.
4. Your salespeople play the role of bill collectors
What is even worse than tasking an administrator with chasing overdue accounts? Giving that job to a sales rep! Your salespeople are critical ambassadors for growing the business. Their role is to nurture and build relationships, never to make customers uncomfortable. Still, many business owners send sales reps after overdue accounts, then back again to ask for more business. It’s not hard to see the tension here. A collection agency is an objective third party, which brings an entirely different psychological dynamic to the past-due customer. The more you use your collection agency as a matter or policy rather than in desperate situations, the less impact doing so has on customer relations. Your sales team can return later, unencumbered by the previous delay—and the customer is sure to have new respect for your payment terms.
5. Your Aging Receivables are too high
When you review the company’s billings, always take a careful look at the Accounts Aging report. If your terms are Net 30 Days like most business-to-business (B2B) companies, the only good column is the 0-30 days. Accounts in the 31-60 days column should have received late-payment notices, and anything older should be sent to collections. Why? Not only does it reinforce the commitment your customers have made, but the likelihood of collecting an overdue debt quickly decline with every passing day. Train customers right and you should very seldom see accounts hit the 90+ days column. Naturally, your business will be more successful and less stressful.
6. You worry about not being paid at all
If concerns about an overdue debt becoming a write-off are keeping you awake at night, it’s high time to call in your collection agency. Trust your gut: chances are you’re not the only creditor at risk and the debtor business is running out of money—and time. Don’t fall for payment delay tactics and be left holding the bag when the customer goes into receivership. At that point, the CRA, the bank, and secured creditors practically always take what little money (if any) is available.
7. Customers take advantage of your good nature
A lot of entrepreneurs are kind, generous people who invest themselves heavily in ethical business relationships. Trouble is, some buyers are not. The Donald Trumps and Peter Pocklingtons of the world make their fortunes on the backs of honest business owners. To survive, you must either become equally tough, or partner with an aggressive but ethical collection partner. By doing the latter, you can continue fostering strong relationships and delighting customers while being yourself and enjoying your chosen work.
Getting started can be easy. At MetCredit, I’ve worked hard to make our services accessible around the clock, with the collection industry’s first completely online collection agency account submission system. Once we set you up, you’ll enjoy direct access 24/7, and can go back to the work you enjoy—and that makes you money.