Every business suffers from profit loss. From product recalls to changes in management, all businesses are adversely affected by actions that can decrease their profits. But sometimes your customers can lead to losses. However, it is not because they are not buying your products but because they are not paying for them. If you have many customers that owe you money and they do not respond to your requests for payment, you may need to seek the services of a collection agency.
A collection agency will work on your behalf to collect any money owed to you by your customers. They agency itself can either exist within your own company or as an outside third-party company. Now if the customer has owed you money for less than six months, you may want to rely on your internal agency for a prompt response. If you create one within your company, you may want to use a separate name, address, and telephone number to shield your identity. Third-party agencies can be hired to work on your behalf. These agencies have proven to be effective in retrieving a company’s lost profits. Customers respond to them because they take their requests for repayment more seriously. The debtor feels compelled to pay not only because guilty but because they are afraid. Receiving a call or letter from a collection agency usually scares them into paying. They are unfamiliar with the legal actions an agency may take and decide to pay their debts off immediately.
A third-party agency makes its profits on commissions. Depending on the type of work they are doing for you, they can earn a large or small percentage of the amount they collect for your company. They work to recover any debts that are six months old or more. They do their best to convince the customer to repay the money as soon as possible. If the debt has been owed to you for too long, you may have already classified it as a charge-off. You do not have to give up on these debts though. Many collection agencies will pay you to take these debts off of your hands. The agency will purchase a large number of these charge-off accounts from your company in order to collect the money. They buy these debts for a small percentage of the face value of the debts. So you are repaid for the debt regardless. You will get some of the owed money back and the agency will try to obtain the full amount of the debt.
Through the use of telephone calls and letters, the collection agency reasons with the customers to pay the money they owe. The letters usually start a little nice but can become forceful and include an ultimatum. If the customer does not respond to the letters, then the agency will call the customers until they respond.
In very extreme cases with sizable debts, you may be able to sue the customer for the money. Be careful when deciding whether the lawsuit is worth the costs. If the lawyer fees will be more than the money you would receive from the customer, you might not want to take the case to court.
By Tamara C. Jude