Collecting in-house vs. a collection agency: Does it make financial sense?

collecting-in-house- IC System

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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About the Author:

Brian Eggert is a business development specialist and writer for IC System, one of the largest receivables management companies in the United States. With 18 years in the collection industry, Brian's experience includes operations, client service, proposal writing, blogging, content creation, and web development.