What to consider before picking a debt collector
Posted Sunday, October 28 2012 at 16:33
The worst nightmare of any entrepreneur is a bad debt since it leads to erosion of capital and profit leaks.
To recover such a debt from a customer; an entrepreneur can pursue various options, ranging from hiring a collection agency, litigation, and use of auctioneers.
The last two options have the undesired effect of eroding prospects of future business relationships.
This leaves the use of agencies as the most preferable means to pursue a debt without antagonising your relationship with the customer.
For effective use of debt collection agencies, entrepreneurs must consider these factors:
Determine the reason for default and explore internal systems
You have done the job, you have invoiced the debtor but he has failed to pay. Before you pass the file to a third party for recovery, find out the reason for the default.
The rule of thumb is; empathise but do not sympathise with the debtor. Next, exhaust internal systems such as use of in-house debt officers or account receivable officer to pursue the debtor with the aim of settling the entire debt or signing a repayment plan.
Keep track of transaction records
Sometimes debtors down-play internal efforts to recover the money. If the debtor is unwilling to sign a repayment plan or settle the debt, then pass the debt file to a collection agency.
Before you consider this option, make sure that the debtor acknowledges the debt lest it would be a waste of energy escalating it to an agency.
To reinforce this, update all necessary records of transactions as this will act as your witness.
Even if you have incurred some costs in pursuing the debt, do not impose interest on the outstanding amount unless the debtor is informed as this could give him leeway to challenge the debt obligation.
Do not pass the debt file to a debt collector without sufficient proof of transactions such as unpaid invoices.
Ascertain reputation of the debt collection agency
You need to assess the reputation of the agency that you plan to hire. What is their success rate?
How conversant are they with the industry? Do they have trained professionals to do the work? What is their growth trend and experience in the industry?