For most business situations, it makes a lot of sense to send overdue files to a good collection agency for accounts receivable recovery. In fact, a number of business models that will probably surprise you (from law firms to funeral homes) do it all the time.
But there are times when sending an account to collections may not do much good. Here are four good examples where a collection agency probably can’t help—and how to avoid such situations in the first place.
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:
It’s a fact: business owners have a ton on their mind.
Entrepreneurs are statistically more likely to be worried, stressed or depressed than the general public, a fact that will come as no surprise to most owners. You have to manage partnerships and cope with lost deals, human resource issues, ever-increasing competition, shrinking margins, regulatory issues and a daily barrage of other surprises. You may be tough and smart, but you’re only human.
Any business that provides credit terms to its customers will face occasional challenges collecting debt. It simply comes with the territory.
Yet not all entrepreneurs are comfortable sending overdue debt to a collection agency—even when experience shows that aging accounts bear an ever-increasing risk of morphing into bad debt writeoffs.
Ironically, the most common reasons business owners and AR Managers give NOT to use a collection agency are based on old misconceptions. Here are 5 reasons to never use a collection agency, all of which are completely wrong.
Entrepreneurs are some of the bravest people in the world. They strike out on their own and stake their livelihood on a dream in a world of unprecedented competitiveness, knowing full well their chances of failure are exceedingly high.
And when it comes to collecting debt, most startup owners are ill-prepared for what awaits them. Vendors are reluctant to grant credit to startups lacking a history, and customers can take advantage of your inexperience or lack of confidence, paying your bills after higher-priority ones with established partners. It's a double-whammy many entrepreneurs never see coming.
Here are four steps every entrepreneur should take to improve their startup business’s probability of surviving those critical early years:
Do some of your customers take unreasonable time to pay, consistently holding out for 60, 90 days or more?
In most cases, they probably have (or could find) the money to pay much sooner. They ought to—having made the purchase and agreed on your terms in the first place.
The reason for the delay is simple. To be blunt, they’re using you.
Not long ago, what people did personally or professionally was easily managed within their inner circles. Our lives were as private as we wanted and maintaining our brand reputations was pretty simple. Even big brands could afford to burn through a certain number of unhappy customers, so long as they were constantly acquiring new ones.
Like it or not, times have changed. More than ever, consumers are empowered to shine the light on companies that fail to uphold their brand promise or whose actions don’t support that promise. This includes company representatives, such as some debt collection agencies, whose actions should reflect your values and uphold your brand reputation.
For most entrepreneurs, collecting overdue bills doesn’t come naturally. It can be awkward asking someone to pay their late invoice. It may even feel like you are imposing on a customer.
Unfortunately, collecting on overdue invoices is a very real part of any business that grants credit. But it should never be a major part of your activities, and bad debt should be a rare occurrence.
Why the heck would we pay a collection agency for something we can do ourselves?
That’s a question entrepreneurs often ask, and it’s symptomatic of not having worked with the right debt collection partner. The truth is, few businesses of any size are equipped to collect overdue debt effectively and consistently.
The reality is that a good collection agency complements your business activities and makes you more profitable.
Here are 8 ways a collection agency can increase business profitability: