Since you have found this write-up it is safe to assume that bad debt is hurting your business or at least you see warning signs in your cash flow. There are several businesses, especially smaller ones that have failed to survive the wrath of bad debt. Trying to handle the debt situation in-house isn’t always the wisest of options given the lack of expertise in debt collection. Hiring people who collect debts on a daily basis should sound the most obvious thing to do. Yet there are businesses that don’t opt for this path to get out of their financial mess. So why do small businesses avoid hiring a commercial collection agency? We can answer this in one word – COST.
There is a popular myth that many businesses fall for and i.e. hiring a debt collection agency is very expensive. These people would charge by the hour and also take a huge cut of the debt that is recovered. Yes, there are agencies that have to do so with their clients but to paint the entire debt collection industry with the same brush is simply an exaggeration. The fact is a reputable commercial collection agency will help you cut costs associated with debt collection and here are some ways in which these companies help you in cutting costs during debt collection.
If you thought pursuing debt collection with your in-house team was cost-effective, you must think again. There’s the cost at every step of the process. From the money you spent in sending regular reminder notices to your client to using the services of a skip tracing firm to locate a missing client, you’d be spending hundreds of dollars in the whole process. Since most of these expenditures come in small installments they don’t seem to be hurting your business. But when you add them you’d realize the amount you have spent on debt recovery. A debt collection agency on the other hand would work on pre-determined rates and this can save you lots of money in the long run.
One of the major downsides of trying to get your team to collect the debt is the loss of productive hours. As a small business, you aren’t likely to have a dedicated team to run after your defaulting customers. Thus you and your team would be spending several productive hours every week which in turn brings down your revenue or encounter a greater amount of dissatisfaction among your customers. By choosing to outsource this job to a commercial collection firm you will save several productive hours and bring down the losses that such an arrangement brings.
The biggest problem with rising bad debt is that it can create a cash crisis for your business. When the liquidity crisis starts hurting your operations you will be left with few options other than borrowing money from your creditors. Depending on the rates you borrow the capital (which you may not have required but for bad debts) you will also have to pay interest which adds to your operational costs. A commercial collection agency would improve the cash flow for your business and chances are you won’t need to borrow money due to this bad debt crisis and pay interest on your borrowings thus saving money.
You can clearly see that a commercial collection agency doesn’t just help you in recovering your bad debt but also helps you in saving money in the whole process. Thus you need to get in touch with a reputable agency and they would take care of your debt problem and let you focus on running your core business.