Does your small business have rising unpaid invoices? Do you not have adequate staff to make collection calls? It may be time to hire a debt collection agency. For a very affordable fee, they can collect your bad debts and bolster your finances.

Small and home-based businesses have to face the daunting task of collecting outstanding bills during their course of existence dealing with bad debts. Whether an uncollected bill is the outcome of genuine shortage of funds at the client’s end or her being a customary defaulter, overdue amounts need to be collected on priority to avoid loss to business. Business heads should have a realistic action plan to manage this problem effectively. Collection agencies are a good option for small and home businesses without the necessary bandwidth and resources to collect outstanding invoices proficiently.

While an occasional unpaid debt can be absorbed in the business expenses, a number of such unpaid invoices take a toll on the cash flow. If the total cost of the bad debts is substantial enough to justify the cost of hiring a collection agency, it is your best shot at getting your money from delinquent clients.

Strategies for hiring a collection agency

A debt collection agency will be dealing with your customers and it should respect your policies and customer service values. As far as clients are concerned, the collection agency is an extension of your business and their experience with the agency will impact your customer relationships. Therefore, you should evaluate a few significant points while deciding on a collection agency, such as:

* Experience working for similar business size and type: Shop around for a collection agency that has some experience with small and home-owned businesses and how they operate.

* Experience with collecting from similar businesses: A collection agency that has handled customers often seen by businesses of your type and size has a better shot at succeeding. Individual non-payers and corporate debtors are very unique and need dedicated handling.

* Skip tracing: Many times, clients move without leaving a forwarding address or get their phone lines disconnected. Collection agencies include specialized skip tracing services – accessing multiple databases – to pin down the whereabouts of debtors and remind them of the unpaid invoice.

* Kind of collection strategies: Verify the collection agency’s collection strategies. If the agency has achieved reasonable success by sending out letters to defaulters, appraise the correspondence yourself to make sure the content complies with the Fair Debt Collection Practices Act. In doing so, you safeguard your customer relationships. Respectfully yet strongly scripted communication can get clients to make their payments and also go on doing business with you.

* Errors and omission insurance: Collection agencies and hiring businesses are insured from liability by the Errors and Omission insurance if displeased non-payers file a suit against the strategies employed to collect the debt.

* Licensing issues: The collection agency should have the legal right to collect debts in locations occupied by the debtors. Otherwise, the collection agency and your business can be charged for unlawful debt collection without a license.

* Collection agency rates: Collection agencies charge fixed fees or contingency rates. The contingency rate is a fraction of the total unpaid sum collected. It is recommended that you do some math with the collection agency’s success rate and contingency rate before finalizing the pricing option. Calculate the charges in both cases – fixed versus contingency, and select the one that works best for you.

Bad debts weigh down every business but they can endanger the existence of small and home businesses that do not have the necessary resources to protect them when strapped for cash. Collection agencies are a sensible choice as even after deducting their fees, you end up getting more than what you would if you pursued the debtors yourself.

Daljeet Sidhu is at Tradeseam B2B Marketplace. Read our Collection Agencies advice. Sellers join for qualified leads.