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When to Hire a Collection Agency

We know no one likes to think about it. Your trusted customers are skirting around the credit terms that they had once agreed upon and your relationship is starting to become cloudy.

You may not be hearing from them anymore and the bad thoughts might be creeping in; “are they avoiding my calls?” or “this is starting to become more and more frequent, and my bottom line is starting to suffer”. The worst part? They aren’t the only customer doing this.

When is it time then to move on to a collection agency? Today, we’re going to speak on when it is time for your company to work a commercial collection agency into your everyday process and how it can better benefit both you and your customers.

Company Structure

A large part that goes into deciding on working with a collection agency is looking internally at your company’s structure. How many people are in your accounting department? Do you have the employees with the time and resources to effectively work in collections? Do we have the ability to train these new employees, so they are working both efficiently and effectively? These questions are huge in deciding the cost-benefit of partnering with an agency and can determine what kind of agency you need to work with.

Any accredited agency has had experience working with companies of all sizes. Whether that is a small mom-and-pop shop or a Fortune 500 company, there is a need for collections and an experienced agency will know how to approach each of these companies.

In our experience, a company that doesn’t have the capital to expand on their collection efforts are typically the ones who find the best use of a long-term agency relationship. To hire and train staff specifically for one part of your business that may not always be a large problem is an expensive endeavor that may or may not net you a positive return.

Working with a debt recovery service can address a serious issue in your A/R department at minimal costs. When placed in the hands of an experienced collector, an agency can revitalize the cash flow that had halted for business and improve on their revenue streams.

Mergers

When working through a merger, your company grows overnight! You gain more assets and your overall equity increases, but so does you’re A/R file. Taking on these potentially lucrative assets can be overwhelming, as many are way past due and have a relationship with the previous company.

In cases like this, bringing in an agency can be extremely powerful. Most agencies work on 100% contingency, there is little to no overhead risk associated with them. Bring an agency to work on these files may end up being your most cost-effective and efficient item. In the same argument where company structure lies, it may be more expensive to hire new employees to handle these files than it’s worth.

Bringing in a collector will cost you $5,000 in salary alone per month. Counting training, expenses, overhead, insurance, and more you are looking at $6,000 to $7,000 per month. Overall, you are looking at $72,000 to $84,000 a year PER collector. That is a large investment for a single collector to have a learning curve of well over a year.

By working on contingency, agencies show that they only win when you do. By only paying out on the debt that you have collected, you guarantee a positive cash flow on any use of an agency when collecting. With years of experience and certifications, an agency is a sure choice for further securing your bottom line.

Industry

Some industries are more notoriously known for being exposed to debt than others. Industries with large balances that are extended on credit can often see accounts go into delinquency. Some major industries like equipment rental, restaurant supplies, and the alternative finance industry are all typically exposed to debt. However, commercial debt recovery does not discriminate and is open for every business!

Depending on your industry, you might find that debt is more of a rare occurrence rather than a part of everyday business. Likewise, certain industries have a harder time collecting debt than others. Many industries go through waves of higher traffic and purchases and they can see this traffic not payout 60-90 days past their initial terms.

For example, the medical supplies industry has exploded since March. PPE equipment could not be produced fast enough as fears of COVID spread rampantly throughout the world. Many of our medical supply clients have turned toward us, deprived of their inventory, and left hanging on the bill.

We hear all the time that “well we don’t run into those problems here”. At the end of the day, it’s best to understand what options you have when you do run into a problem, and a collection agency is not only a solution for many industries but an integral part of some company’s business.

Goals of the Business

Every business has different goals and 5-year plans. However, some may see those goals in different lights. We have found that businesses looking for growth and expansion often do well when they partner with a collection agency!

In order to grow, you must start offering credit terms for larger purchases of your products. With credit terms comes an inherent risk that brings potential strain to an A/R Department. Partnering with an agency doesn’t just mean they can handle past due accounts.

Many agencies have begun to offer accounts receivable management services, where they begin handling all your AR needs from day one! This potential partnership is perfect for saving relationships before they reach a point of no return.

Other times if a business is trying to stay afloat, it may be an emergency to start using a collection agency. Accounts receivable can be an immediate boost to a company’s cash flow and when in a dire state, that cash flow could mean the difference between the lights being on or not.

Conclusion

Companies are beginning to see the need for increased cash flow during this pandemic. Fortifying your company with commercial debt collection protects the future of your company and its bottom line. If you empathize with these business struggles, KBM might just be the right fit for you. Fill out this free quote and our collection experts will reach out to you as soon as today!