In an ideal world, all customers would pay their invoices on time. However, the reality often falls short of this expectation, leading businesses to consider employing a debt collection agency. While hiring a collection agency offers many advantages, it's also important to consider potential drawbacks. This article aims to provide a balanced view of the benefits and disadvantages of using a debt collection agency.
Pros and Cons of Hiring a Debt Collection Agency
👍 The Benefits of Hiring a Debt Collection Agency
Successful and Faster Debt Recovery: Debt collection agencies specialize in recovering debts, which means we have a wealth of experience and a set of proven strategies to recover debts successfully. We understand the psychology of debtors and know how to motivate them to pay. This expertise usually results in faster debt recovery compared to in-house efforts.
Hassle-Free Process: Debt collection can be a time-consuming and stressful process. It involves tracking down debtors, making repeated calls, and dealing with often difficult conversations. By hiring a debt collection agency, you delegate these tasks to professionals who are trained to handle such situations, freeing your team to focus on their core responsibilities.
Access to Tools and Resources: Debt collection agencies have access to advanced tools and resources that most businesses don't. For instance, we use skip-tracing technology to locate debtors who have moved without leaving a forwarding address. We also have the ability to report delinquent debts to credit bureaus, which can be a powerful motivator for debtors to pay.
Legal Protection: There are numerous laws at the federal and state level that govern debt collection. Violating these laws, even unknowingly, can result in hefty fines or legal action. Debt collection agencies are well-versed in these laws and ensure that all collection efforts are compliant, thereby protecting your business from potential legal issues.
Aside from acting as a shield between you and your debtor, a reputable agency will know all the federal and state laws relevant to debt collection.
Focus on Core Business Activities: Every hour spent on debt collection is an hour not spent on your core business activities. By outsourcing debt collection, you and your team can focus on what you do best, whether that's serving customers, improving products or services, or growing the business.
Legal Assistance: If a debtor refuses to pay despite repeated attempts at collection, it may be necessary to take legal action. Some debt collection agencies have in-house legal teams or partnerships with law firms, and they can handle the legal process on your behalf. This not only increases the chances of success but also saves you the time and effort of finding and hiring a lawyer.
Additionally, with only around 80% of judgments being collected, a collection agency will know when it is practical to file a lawsuit. A collection agency can also use tools to enforce judgments to deliver a complete service.
👎The Drawbacks of Using a Debt Collection Agency
Cost of Services: Collection agencies charge for their services, typically ranging from 20% to 40% of the amount collected. However, many companies believe that recovering some debt is better than losing the entire amount owed.
Potential Impact on Client Relations: Outsourcing to a debt collection agency can sometimes lead to adverse reactions from clients. A call from a collection agency can leave a negative impression, especially if the agency lacks empathy skills. As Avi, the CEO of Fair Capital, often says, "The two vital components of a debt collection agency are Compliance and Respect.
The bottom line.
The decision to use a debt collection agency isn't one-size-fits-all. Some businesses will benefit more from bringing in outside help, while others may find it less advantageous. It's clear that the potential drawbacks can be mitigated by carefully choosing the right agency. Ultimately, the decision should be based on a thorough evaluation of your business's specific needs, resources, and customer relationships.
