Focusing on past-due accounts is the most important component of accounts receivable management. In order to recover accounts receivable, the path to success is setting up a system where late-paying customers get reminders and those reminders are consistently administered. This alone may raise the question of whether your firm should keep the collection efforts in-house or if it would be better to work with a collection agency. In terms of dollars, it would seem like keeping it in-house is the best course. After all, your staff can handle making some phone calls and writing letters, without incurring the costs of paying the collection agency. We’ll take a look at whether it makes sense to keep collecting in-house.
Is a collection agency bad for business?
One reason a business may choose in-house collections is they don’t like the idea of working with a collection agency because it may be bad for business. They may fear their customer would have a negative encounter with an agent — or hear messaging that doesn’t align with your business. So the reasoning is if they keep it in-house, they can retain control over customer communication, whether it’s ensuring quality or setting up a payment plan.
However, there may be an element of myth behind this perceived advantage of control. An ethical collection partner would have a quality control system to ensure every customer contact is courteous and follows federal and state laws — and they should be able to show it to you. In addition, there are many actions a collection partner can take on your behalf, which add to the value. They can negotiate a payment plan (with your approval). Or in the case of a medical account, they can initiate an appeal with the insurance company. Bottom line, a good collection partner is like an extension of you.
Can you really do everything a collection agency does?
The truth is, building a collection department that has all the same functions as a professional and licensed collection agency requires some investment and infrastructure. A high-quality collection agency does much more than mail letters and make phone calls. Good agencies bring additional resources to the problem to help you unlock the trickiest accounts. Some examples: credit monitoring, skip tracing, credit reporting, and attorney litigation referral.
Unless you plan to hire dedicated staff for past-due accounts, relying on your existing staff for collecting in-house may be setting them up for failure. If their time and attention is focused on a variety of urgent tasks that come up during the day, it’s not uncommon for in-house collection efforts to fall by the wayside. Having a collection agency take care of it for you will free up their time — and give them the bandwidth to focus on other accounts.
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