Does your company have a plan to recover delinquent debt? It should.

No matter what your business or industry, accounts can dry up and leave you standing with a large unpaid accounts receivable entry – but there are actions you can take. Whether you have a few paid unpaid accounts or an entire portfolio of uncollected debts, an accredited and certified debt collections agency can help you recover your accounts receivable so you can make sure your company doesn’t take a hit from unpaid invoices. Working with a debt collection agency can be the difference between actually receiving cash flow and having to deal with revenue write-offs.

However, before you start working with a debt collection agency, there are some things you need to know in order to make the experience as easy and pleasant as possible. 

The Differences Between Commercial and Consumer Debt

While there are many types of collections agencies, there are only two basic types of debt – consumer and commercial. This distinction matters because collecting on these accounts receivables will fall under different restrictions and require a different approach. 

Before we talk about what it is like working with a debt collection agency to recover delinquent accounts, let’s discuss the differences between commercial and consumer debt.

Consumer Debt

Receivable Collection Agency and Legal Debt Collection ProcessConsumer debt is an umbrella term that refers to all the debts that people accrue in their personal lives. This category includes car loans, credit card debts, medical bills, mortgages, and so on. Accounts receivable that are classed as consumer debt fall under strict guidelines on how collections can be performed and recovered. Consumer debt collections are regulated by the Federal Trade Commission (FTC) and the Fair Debt Collections Practices Act (FDCPA). These agencies and regulatory guidelines explicitly outline what debt collectors can and cannot do to collect from individuals. 

In general, consumer debt collectors may contact debtors via phone calls, letters, email, text messages, etc. However, they must do two things for their contact with the delinquent account to be legal. First, they must identify themselves as a debt collector. Secondly, they are required to send a notice that outlines how much that person owes within five days of contacting that individual.

In general, consumer debt collectors may contact debtors via phone calls, letters, email, text messages, etc. However, they must do two things for their contact with the delinquent account to be legal. First, they must identify themselves as a debt collector. Secondly, they are required to send a notice that outlines how much that person owes within five days of contacting that individual. 

Commercial Debt

Accounts Receivable Debt Collection and Successful Debt collection Agency

Commercial debt collection is significantly different from consumer debt collection. Being less structured and specific about what collectors can and cannot do, however, is a minefield of its own to navigate. With the increase in creative latitude comes the burden of applying best practices in thesis with a consistency that can stand up to rigorous scrutiny by a more subjective governing body.

In commercial recovery efforts, professional experience is critical to compliant and effective collection of accounts receivable. All involved in the collection of a debt are responsible for the actions taken in the collection process. As such, making the choice to partner in the management of your accounts receivable with an agency you can trust is of utmost value. National Service Bureau has maintained an exemplary score card in compliance on behalf of it’s clients for over 30 years and has specialized in commercial recovery, maintaining relationships with some of the most discerning clientele in multiple industries.

 

About the Collections Process

Commercial collections agencies follow a process based on the needs of the client, and the liquidity and cooperation of the debtor, among other factors. It’s important to recognize that the collections process takes time, and as your debt ages the likely amount of recovery is reduced. It is valuable to move your delinquent accounts on in a timely fashion to give your agency time to work on your accounts and do as much as possible to maximize the recovery on your delinquent accounts while you get back to operations and driving new business.

Compliance in Debt Collection and Accounts Receivable Management Collection Agency

Step 1: Identify 

The first step in the commercial debt collection process is for your company to identify your delinquent accounts and contact an appropriate collection agency to pursue the missing revenue. As mentioned above, it behooves you to select an agency that specializes in your industry, has a track record of experience, and is set up to custom orient themselves to your specific needs.  

From here, the collections agency will review those unpaid accounts receivable and other information related to your payment terms as well as the contract, and advise you of their best approach to your accounts, confirming that their suggested steps are in line with your goals and amenable to your public image.

Healthcare collection Agency and Debt Collection Compliance

Step 2: Contact

In Step Two, your debt collection agency will reach out to the debtor by email, fax, and/or mail and will make every attempt to speak to the delinquent account holder on the phone. This is an important step because it establishes the professionalism of the collection agency with the debtor, as well as your seriousness about taking steps to enforce collection.

After that call, the delinquent account holder will have a clear understanding of the priority of repaying the debt they have to your company. The agency will attempt to resolve disputes, arrange payments, and obtain a commitment that the debtor will pay. Through contact with the delinquent account holder it will be conveyed exactly how much is owed and why, as well as the options the collection agency has to collect on the delinquent account, should the account holder choose not to cooperate.

Accounts Receivable Debt collection and Debt Collection ServicesStep 3: Cooperation (or Lack of Cooperation)

In the best case scenario, the debtor cooperates in response to the effectiveness of third party communications and all parties come to terms to remit payment in full for any amounts owed. Unfortunately, this is not always the case.

When the delinquent account holder is uncooperative, the collection agency will begin to make pre-legal collection attempts. These let the person know that if he or she fails to cooperate, an attorney will be included in this collection process.

Accounts Receivable Debt collection and Debt Collection ServicesStep 4: Resolution

If the debtor decides to cooperate, the process concludes rather quickly. The claim and accounts are received, the collection agency collects the funds owed and distributes the recovery according to the client agreement.

Should the debtor decide to NOT cooperate, after the agency works the claim for a prescribed amount of time - 60 days, for example - if there has been no effort on the behalf of the debtor, or if the debtor has issued a formal cease and desist order, it’s time to consider taking legal action. At this point the collection agency will advise you of the debtor’s actions and recommend forwarding the details to an attorney.

Accounts Receivable Debt collection and Debt Collection ServicesStep 5: Legal Action

Your collections agency and the attorney assigned can handle this step for you. While you could decide not to pursue a lawsuit, (at which point the collector may continue to work the account for another set time period before closing the file) if you decide to authorize legal action based on the advice of your agency and the discovery they have performed on the debtor in question, the attorney assigned to your case will file a lawsuit and the delinquent account holder will be served with the complaint.

If the debtor does not respond, the attorney or attorneys will file for a default judgment on your behalf. If they do respond, your evidence will be presented for the judgment of a court.

Accounts Receivable Debt collection and Debt Collection ServicesStep 6: Awarded Judgment

After your lawsuit is awarded, or if you already possess a judgment regarding your receivable funds, there is no magic payment ferry. So, the professional work of your collection agency begins in another avenue. Revisiting and verifying the debtor's assets and liquidity, the agency will initiate wage garnishment orders, bank liens, or levies, and pursue them in an ongoing fashion to satisfy the judgment.

 

How Collections Agencies Handle Compensation

The collections process becomes fairly simple once a debt collection agency is involved. There is typically a short list of ways that collections agencies are paid for their services – variable costs, fixed fees, and contingency basis.

Compliance in Debt collection and Accounts Receivable Management Collection Agency

Contingency Basis

An agency that charges a specific percentage of the funds recovered against the files turned over by the client is working on a contingency basis. The great advantage of this structure is that the client never pays a fee unless successful recovery is obtained by the agency. This is the most mutually incentivized option and often has the most satisfactory results for clients. Typical rates are 35%-40%. However, based on the age or size of the debts owed, the strength of the contractual agreement with the debtors, the potential for successful litigation, and the regularity with which new debts commonly arise, that range can extend on the extremes as low as 15% and upwards of 50%. Professional evaluation of your delinquent accounts by the agency is needed to properly set a rate that will best serve you.

Fixed-Fee Basis

This means that a flat, fixed-rate is charged to the client. Regardless of the account’s size or number of delinquent accounts, a simple one-time fee per account or a revolving fee for specific ongoing service is collected. This structure may make sense when only certain specific actions are to be taken in the effort of recovery, as specified by the client, or when a client simply wants to outsource the direct efforts of one or more professional collectors who will be professionally sourced, trained and managed by the agency.

Variable Costs

When a debt collection agency accepts variable costs, this usually means a combination of fixed-fee and contingency fee structure, or potentially a fee that scales based on the various stages of each individual debt account. In such cases, fees collected in a relatively early delinquency phase may be assessed a fee for professionally outsources services of the agency; a lower contingency fee may be attached to delinquent accounts requiring a greater investment of research and engagement of the debtor by the agency; and another fee may be set for cases requiring legal action.

Variable fee structures are generally set up for clients with large volumes who are very aware of their delinquent accounts and are looking for a comprehensive outsource solution.

 

How to Find the Right Collection Agency for your Business

Finding the right debt collection agency for your business is a matter of looking at several variables.

Age of Debts in Question

The most important issue in question is the age of the debts in question. This is important because it will help the agency understand how much of that debt they are likely to recover. The longer the debt has been delinquent, the lower the collectability of that debt is.

Normally the age of delinquent accounts is grouped into general categories. While the industry in which your business operates could impact the severity of the debt’s age, here is a simple guideline:

 Inside ARM Debt Aging Graph

Image credit: InsideARM.com

As you can see, the older the debt is, the less its recovery estimate will be. Several reasons apply, including potential statutes of limitation, opportunity to locate a debtor, progression to bankruptcy, changes in solvency, among other potentially applicable factors.

It is all about finding a collection agency that is a good fit for your company.

 

Evaluating Collection Agencies

Evaluating a good fit collection agencyIn addition to looking at whether a debt collection agency is a good match for the size of your business, the magnitude of the debt owed, and the age of the debts in question, there are several other factors that should weigh in. Some debt collection agencies specialize in specific industries and that could give you an advantage in recovering your delinquent accounts receivable. This is why we created a simple guide to help your business evaluate debt collection agencies.

You should also look at the reputation of the agency. Some agencies have been around for a long time, are well-reviewed, and carry multiple certifications from credit protection agencies – but many do not meet these standards. 

Make sure you ask the following questions before contracting with a debt collection agency:

  • Does the agency specialize in my industry?
  • Is the agency insured?
  • Is the agency considered reputable and respectful?
  • Is the agency capable of managing domestic and international debts?
  • Is the agency transparent in their efforts collecting debts?
  • What is the success rate for the agency?
  • Can the agency tailor a solution to your needs?
  • How does the agency submit data?
  • Can you obtain a scope of work or a service level agreement?

 

When to Contact a Collection Agency

The time is NOW!When you have delinquent accounts receivables, it can be tempting to continue to contact your customers yourself. You’ve already heard all the bizarre excuses and contingent promises they offered since you sent the first bill. You’ve already heard that the check is in the mail, the system was down, the check signer was out of town, or whatever other excuses your client conjured up. While there is every chance that your client experienced a major difficulty in his or her business or personal life, you also have a business to run, people to employ, and supplies to purchase and new business to produce. 

Your debtor has already had a chance to deliver their promised funds to your business. Now, it is time for action. Pull the contract the client signed and send a final notice demanding satisfaction of the delinquent amount within a short and specified timeline. If you don’t get a response within said timeline, refer the delinquent accounts receivable to your collection agency and save your company the time and energy of collection. Don’t re-task an employee that should be focused on their core functions. Let your collection agency play the role they specialize in.

The right collection agency will act as a partner with your business to help you recover delinquent accounts. They will help you prevent overdue accounts from getting out of hand by advising you of best practices and helping you implement strategies like pre-collection to help you intervene on past due accounts earlier and more effectively. In the end, this is about preventing loss for yourself and your business.

 

Why You Should Contact a Collection Agency

If your business is struggling with overdue accounts or past due revenue, you should seriously consider partnering your accounts receivable management with a debt collection agency. You can rely on the agency’s experience, expertise, diligence, and judgment to recover missing revenue in the form of unpaid accounts receivables and can free your company up to focus on the things that matter – running your business.

Contact one of our collection specialists today, and we'll help you create a plan of action to recover frozen capital for your business.

Contact a Collection Specialist