How Do I Get Started With a Collection Agency for My Business?

Many small and medium-sized businesses are accumulating unpaid invoices, and it becomes more than just an accounting problem. It creates pressure on cash flow which makes it far more difficult to meet expenses and find opportunities for growth.

But many small to medium-sized businesses hesitate to get started with the right debt collection agency.

If you are a business owner or operator and you’re considering working with a collection agency for the first time, here are some important steps to consider.

Understanding when it’s time to consider a collection agency for your business.

You do not need to send every late invoice to a collection agency. But, you do need to get good with recognizing patterns. You should start by looking at your accounts receivables and try to identify those late patterns with customers.

Are some customers consistently paying your business late?

And are their invoices reaching 60, 90, or even more days past due?

Is your staff spending too much time making repeated collection calls and sending reminders when the results show they aren’t working?

Hiring a collection agency makes sense when some of these factors continue to take place in your business.

• Invoices have become significantly past due.
• Your internal collection efforts are not producing results.
• Your staff is spending too much time pursuing delinquent accounts.
• Customers stop responding to calls or emails.
• Outstanding receivables are putting pressure on your cash flow.
• You want a consistent process for handling seriously delinquent accounts.

The earlier you establish a clear process, the less likely unpaid invoices will become a recurring problem.

Conduct a detailed review of your accounts receivables before sending accounts to collections

We always recommend you take a closer look at all your accounts receivables with your bookkeeper or CPA before sending any accounts to an agency. This is where identifying those patterns come into play.

Understanding why particular invoices have not been paid can help you make better decisions about debt collection activity. Review these with your bookkeeper.

• Which invoices are outstanding
• How old each invoice is (Aging)
• The amount owed
• When payment was due
• Whether there are disputed invoices
• What collection efforts have already been made
• Whether there are payment arrangements in place
• Whether the customer has communicated a reason for nonpayment

When you look deeper into the reasons behind late and unpaid invoices, it can give you and your team a better understanding of these accounts and may even help misunderstandings if sent to a collection agency.

Understanding these details can also help you identify issues in your invoicing and internal payment processes.

Choosing a collection agency that understands your business and industry

We’ve explained this many times but not every collection agency operates in a similar manner.

When you evaluate a collection agency for your business, you’ll want to feel confident they understand your business and industry and know how to communicate with customers.

They should also understand that, for many businesses, maintaining existing customer relationships is just as important as collecting overdue invoices.

Diplomacy, dignity and respect go a long way in helping your business build cash flow and maintain future revenue.

• How do you communicate with customers?
• How frequently do you contact them?
• What happens when a customer disputes an invoice?
• How do you handle customers who want to establish a payment arrangement?
• What industries do you typically work with?
• How are your fees structured?
• What information do you need from my business?
• How will I receive updates about accounts?

A reputable agency should be willing to explain its process clearly before you turn over an account.

Providing your collection agency with complete and accurate information is important

When you’ve selected a collection agency to represent your business, make the transition and getting started as straightforward as possible.

You’ll want to provide as much documentation as possible on each account you’re submitting to collections. And if you have good bookkeeping systems, the following should be easy to put together for the agency.

• Customer name and contact information
• Invoice numbers
• Amounts owed
• Invoice dates
• Payment terms
• Copies of invoices or statements
• Relevant contracts or agreements
• Previous collection communications
• Notes about disputes or payment arrangements

As you might imagine, the more complete the information you supply to your collection agency is, the easier it is for your agency to understand your accounts, communicate effectively with your customer and get started as soon as possible.

Using debt collections as part of a larger cash flow strategy for your business

A collection agency should not be viewed as your entire accounts receivable strategy. But it is a necessary one. Improving cash flow also can minimize the accounts you have from becoming seriously delinquent in the first place.

While collections are a necessary part of your cash flow, you should review your internal procedures with your bookkeeper or CPA. Those include.

• Your payment terms
• Invoice accuracy
• How quickly invoices are sent
• Accepted payment methods
• Customer credit procedures
• Payment reminders
• Follow-up procedures
• Accounts receivable reporting
• How quickly your team addresses disputes

The goal is to create systems that help you get paid on time, with a professional solution available when accounts aren’t easily resolved internally.

Remember getting paid and keeping your customers can coexist with your business

Many business owners, especially small businesses looking for a collection agency, hesitate because they worry about losing customers. That concern is valid but allowing overdue invoices to pile up isn’t good for those business relationships either.

Finding a professional collection agency that treats your customers with dignity and respect and uses problem solving to get you paid and retain the customer is the best solution for your business.

The goal is to create an effective process for getting paid while preserving those relationships when possible.

For small and midsize businesses, the goal is straightforward.

Improve cash flow, reduce the time your team spends chasing unpaid invoices, and give customers a professional opportunity to resolve what they owe.