Collection Agency
How A Collection Agency Can Clear Your Cash Flow
Late payments obstruct cash flow of a company and may lead to insufficient working capital. In such cases, an outside agency dedicated to the purpose of pursuing these debts can be involved. Such an agency is called a collection agency or a recovery agency. For a fee or a percentage of the debt to be recovered, these agencies pursue collection on behalf of the creditor. The expense so incurred or the percentage money paid is written of as a loss.
When To Involve A Collection Or Recovery Agency
Most companies have a policy in place for the duration up to which a late payment can be extended. Usually it is 14-15 days beyond the credit term. Recovery agencies are approached usually in case the payments are not met even after this allowed time period. In most cases, payments are pursued by in house collection departments till they are late. A recovery attorney may also be consulted at this stage. However, commercial relationships are at risk in such a case and many companies contact recovery agencies that take the legal route as a last resort.
How To Choose A Recovery Agency
In current financial climate, recovery agencies are a dime a dozen. A single search on any search engine will produce a list of hundreds of such collection agencies. However, it is necessary to practice prudence and discretion in selecting the right collection agency. Heavy handedness or wrong practices by the agency may sour commercial relationships between customer and creditor and also damage the creditor's reputation. Companies usually look for agencies that understand and respect their business values.
When deciding on a recovery agency, it is necessary that a company first find out whether the agency of their choice has the license to operate in their particular state. A company should also make clear agreement with their recovery agency about cancellation processes and fees. The length of agreement and parties authorized to contact the debtor should be specified. Good communication of debtor details and an understanding of the methods employed for recovery are also important.
Methods Employed
Most recovery agencies have some techniques in common. First a letter called a 'final notice' or a 'demand' is sent to the debtors notifying them that their debt would be handed over to the agency involved if they didn't pay in a specified time period. If this fails, communication is made directly by the agency in the form of emails, letters and phone calls. Attempts to evade contact may be foiled by the method of skip tracing; whereby various public records are used to find contact information. If the debt is still not paid, the collection agency reports it to the concerned credit bureau. This makes bad credit history for the debtor which may cause difficulties in getting credit elsewhere. Most debtors will want their credit record cleared. Finally, when all fails, the collection agency contacts a recovery attorney.