Collections Agency 101: Weighing the Pros and Cons

Are you looking for ways to increase your small business revenue stream? Do you have a long list of customers that owe you money, but you just can’t seem to get them to remit a payment? If you answered yes to these questions, the odds are that you have also considered a collections agency to handle some of your past due accounts and get cash into your hands fast.

Collections agencies are adept at getting people to make good on their financial responsibilities. While most people cringe at the sound of the words “collections agency,” one can help you keep the doors of your small business running. Here are some of the pros and cons of using a small business collections agency:

  • Pro: Collections agencies help you recover more dollars, more efficiently. While you will need to pay a collections agency to manage past due accounts, the return on investment is generally higher. However, the chances are that your phone calls and bills have been unsuccessful. Although you will pay the collection agency a percentage of the money they recoup, a portion of a past due account is better than no payment at all.

  • Con: Using a collections agency might tarnish the reputation of your business. Word travels fast when customers are unhappy. A disgruntled customer may become upset if you place their account with a collections agency. They are likely to tell friends and family about the experience, which is not good for your hard-earned reputation. To combat this, consider implementing a system that gives your customers more than fair warning about handing over their past due accounts to an agency.

  • Pro: Collections agencies free your employees to invest their time more wisely in other business initiatives. Collecting on accounts with your own manpower can be time consuming. With a collections agency, you can free your employees to concentrate on more pressing business issues.

  • Con: Using a collections agency puts a third party between you and your customers, making your business seem less personal and more commercial. One of the reasons customers choose to buy from small businesses is because they generally feature more personal service. A collections agency might take away from the unique relationships that you have established with your customers.

The bottom line is that collections agencies can help you recover funds that are owed to you, but it might come at a price. Weigh the costs of losing or weakening relationships with your customers before hiring a collections agency.

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