If your a small business who does business on credit, there will probably be a time you need to call in a collection agency to deal with a severely delinquent account. However, collection agencies are almost always considered a last resort. But why? We are naturally inclined to think of collection agencies as “sketchy”. Here’s a few reasons that collection agencies got such a bad rap:
Why Do People Think Collection Agencies Are Sketchy?
1. Ruined Customer Relationships – When you send your customers to a third party agency, there is a risk of losing that customer. If you don’t do the proper research it takes to find a quality collection agency, you could use one that doesn’t treat your customers the way you would hope. Business owners who have made the mistake of not doing proper due diligence have lost customers because of collection agencies who didn’t put customer service at the top of their priority list.
2. Non- Transparent Pricing – Some collection agencies do not have transparent pricing and it’s near impossible to figure out their free structure. It’s scary to commit to a service whose price you don’t quite know.
3. Lawbreaking – Some collection agencies don’t always follow the careful laws set in place to protect debtors. This leaves negative impressions on both the business who sent the account to collections and the account holder. Make sure to learn about your rights and how to stop a bad debt collector.
Collections is an interesting industry and truthfully, rather lucrative. According the CCAA (Commercial Collection Agency Association), in 2008 there were close to $15 billion commercial accounts placed for collections. No telling what that number is now. To put things in perspective: trade credit is a $2.1 trillion industry; 20% of THAT is delinquent.
As mentioned, an issue with *some* agencies is they don’t follow the laws. But then again the laws aren’t particularly enforced. For example, of over the 6,000 collection agencies in the US, only about 5% are properly licensed.
And back to those hidden fees. They are hard to find for a reason, because they tend be 30% – 50% commission fees. Non-transparent AND astronomical.
So, does that makes sense? People jump to this sketchy stereotype because *some* collection agencies treated their customers poorly, hid their ENORMOUS pricing and ignored important collections laws.
However, not all collection agencies are bad. It’s simply about asking the right questions to make sure you find an agency that values the relationship you have with your customers, is upfront and honest about their fee and takes the rules seriously. Take the time to do proper due diligence on a collection agency so you stay away from those that give the industry a bad rap. Also, do yourself a favor and look at streamlining your receivables management, so you can do your best to avoid those collection agencies.