Should a Business Hire a Collection Agency to Collect a Debt?

Should a Business Hire a Collection Agency to Collect a Debt?

It is no secret that every business, both large and small, in the UK will deal with the issue of collecting debt at some point.

A business must maintain a stable cash flow in order to grow. If a client refuses to pay, it can put a lot of strain on the business and at worst can affect your ability to pay your own bills.

Most businesses operate on payment terms of 30 days, with larger organisations choosing 60-day terms. If a client does not pay within this time frame, their payment is declared as overdue.

For any payment that has been withheld, the best course a business should take is to begin debt recovery as soon as possible. There are several ways in which this can be done, and it is important to understand the debt collection processes for each one.

In this article, our experts explain why a business should hire a collection agency to collect a debt.

Should a Business Hire a Collection Agency to Collect a Debt? Debt Recovery Methods

There are several methods that a business can use to recover the debt that they are owed. Before committing time and money, it is important to understand the differences between these so that your business chooses the best option for you.

Collecting the Debt In-House

When dealing with a client that has not paid, many businesses utilise their own in-house credit control department. Normally this will involve chasing the client through the means of phone calls, letters and email messages.

It is good practice to begin sending polite and professional payment reminders when first making contact with the debtor. If the payment has been overdue for short time, there may be a reasonable explanation for the delay.

Chasing the client for payment in-house may help to resolve many cases quickly. With a professional approach to the collection of unpaid invoices, they can also be dealt with in a way the ends the matter amicably.

Despite the best preparations and in-house processes, there will always be those that are determined not to pay. Many businesses will spend too long attempting to collect a debt from a client that cannot be contacted at all. As well as this, the cost in both time and money can mount up if a deadline to escalate the collection is not set.

In cases like this, it is better to set issue a final notice to the debtor before escalating the case to another debt collection method.

Taking Court Action and Solicitors

One common course of action business owners choose to take when they are owed money is to take the case to a small claims court. This is a well-known way to recover a debt, and often final notice letters that indicate the creditors intent to take this court of action is enough to make the debtor pay.

In many cases, this method can be effective, however, it must be noted that there is a significant cost to this in terms of both time and money. Court action can take a long time to produce any kind of result, and business owners choosing this path must be aware that there are no guaranteed outcomes.

It is common for some cases to cost more than the value of the debt, which can lead to them writing the debt off entirely.

Hire a Collection Agency to Collect a Debt

In recent years it has become more popular for both large and small businesses to instruct professional debt collection agencies to recover the money that they are owed.

Many agencies provide low, fixed fee payment models together with small commission payments. This has the effect of making debt recovery costs as low as possible, enabling the business to recover the maximum amount,

As well as this, many agencies that provide debt collection services specialise in certain areas or working sectors. For example, Federal Management is widely regarded as the UK’s leading commercial debt recovery agency.

Whilst the cost of hiring (or “instructing”, as it is known) is much lower than that of other options, it is still something that should be factored into your decision making.

Should a Business Hire a Collection Agency to Collect a Debt – How Much do Debt Collectors Charge?

If you have chosen to hire a collection agency to collect a debt, then you will want to know the cost of using their services.

As with any service-led working sector, there are many different models and pricing structures available to choose from. In many cases, the best way to learn the cost of a debt collection agency’s services is to enquire to them directly. However, there are many pitfalls, and many deals that sound good on paper may turn out to be problematic later on.

For instance, many agencies offer ‘no win, no fee’ deals, which can draw in many business customers that perceive it as a risk-free option. Whilst this perception is understandable, these types of deals often come with heavy-hitting expenses if a case is won, or require the customer to become locked into a lifetime agreement with monthly service charges.

The agencies to look for will usually have a fixed price structure, along with a low commission rate. Every debt collection case is unique and must be judged and priced on its own particular circumstances. No two cases are alike, and therefore no ‘single price’ can be given.

The best agencies to choose are those that are approved and regulated by a recognised body. Federal Management is regulated by the Financial Conduct Authority (FCA). This means that our clients receive the very best service possible.

Many agencies will charge to perform any research into the debt before taking it on. Federal Management, on the other hand, provides a completely free assessment of debt that assesses what the chances of recovery are. If the debt can be recovered, we will take every step necessary to do so.

For a free appraisal of your business, speak to one of our debt collection experts today.