Years ago, consumers could walk into their local credit bureau and get a copy of their credit report, along with credit counseling. Life was simpler. Creditors could send their consumers directly to the credit bureaus if they so desired.
Then things changed, as they always do. Today, creditors needed to have 500 accounts to send to the credit bureau each month in order to have that privilege. Plus, there is a fee. The credit bureaus no longer want to deal with small businesses directly; it is too labor intensive and costly.
So both small and large businesses went to collection agencies in order to credit report their accounts. Then there was more change in the collection agency world:
- Accounts needed to be skip traced for proper addresses and phone numbers.
- Small companies used third party vendors to find out if the account could be in a bankruptcy.
- Was the phone number listed a cell phone number or a landline?
All of these items needed to be known before one thing was done on the account to actually start the collection process.
The Struggle for Small Businesses
Collection agencies started turning away small businesses due to the upfront cost associated with working accounts. When there are only a handful of accounts, working with small businesses means operating at a loss. There is the initial cost of time to gather client information, set up the account, load accounts in the system, and train the client on client web portals. Often, the accounts are older, which means the rate of return is not as high. All of the processes that need to be completed on the accounts initially are paid expenses.
Small Business Solutions
So along came yet another change in the collection agency world: upfront fees to place accounts. This is handled in different ways by agency. Some charge a signup fee to do business with them, some have you buy a block of accounts that you use over time, but are paying for up front. Others charge a placement fee per account and a lower commission rate along with a grace period of where you would only pay the placement fee if the account was collected early on.
What Small Business Owners Should Know
Without this type of fee structure, collection agencies struggle to work with small business owners. Not because they don’t want to, but because there is not enough time in a day and it is a financial loss.
If you are a small business owner seeking help from a debt collection agency, here are some tips:
- Making sure you do not purchase a large block that may take you years to use if only have a small number of accounts.
- Look out for super high commission rates when the initial collection period is over and it is moved into what some call the next phase of collections.
- Consider carefully whom you want to send to collections under this system. Do some math and figure out what you believe makes sense to your business.
- Don’t wait months and months to turn accounts over thinking you will collect it yourself. The older the account gets, the less the chance of collecting.
- Get a process down for your A/R and stick with it. Ask for advice from your agency. They want to be successful for you, too!
Questions about working with a collection agency? Contact our small business managers for more information.