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When Should You Outsource To A Commercial Debt Recovery Company?

People discussing their debt collection strategy

When Should You Outsource To A Commercial Debt Recovery Company?

Deciding when and if to outsource your debt collection to an agency is one of the biggest credit management decisions your finance department will make. But how do you know when the right time is? How long should you leave it? And is it worthwhile outsourcing at all? Here, I share some of the telltale signs that indicate it’s time to outsource your debt to a collection agency.

Breaking promises to pay

Many late payers and bad debtors make promises to pay, some are with genuine intentions, others maybe not so much. It’s difficult to decide to outsource to a collection agency when a debtor is promising to pay. However, if they have broken their first promise it is likely they’ll do it again. This can result in a debt becoming months or even years old meaning that it is harder to recover than if it comes to a collection service early on.

Avoiding contact

If your client contact is avoiding your messages, phone calls and emails it’s usually a red flag – especially if your correspondence is in relation to payment. Continually attempting and failing to contact your debtor can take up a lot of your valuable time. In some cases, the debtor may hope that you get bored and will stop chasing the payment they owe. In this case, outsourcing to a third party sends a strong message that you mean business.

What’s more, you’ll save time as the debt collection agent will resume the payment chasing on your behalf. Usually, when a payment is outsourced to a third party, a late payer knows you are serious about getting paid as a result payment is normally made shortly after third party involvement.

Ignoring invoices

Some late payers will ignore invoices or claim that no one has time to follow up on them. This can lead to a frustrated client being passed from person to person with no one taking accountability for the payment owed. A commercial debt collection company will be able to get to the source of the late payment, pin down a responsible party, and recover your debt for you. Again the ‘third party’ effect shows that you mean business and you won’t take no for an answer.

The customer breaks terms of the original agreement

Breaking the original terms of payment sets you and your customer up for trouble from the get-go. Your response to your customer’s initial breach of contract will determine their future payment behaviour towards you. If you tolerate the break in terms, then it is possible that they will break their future promises of payment as well.

Outsourcing to a commercial debt collection agency can help you quickly recover what you are owed and settle you and your customer into a nice natural payment pattern.

How long should I wait before outsourcing to a commercial debt collection agency?

Specifically, how long you will wait to outsource will depend on your previously agreed payment terms. Most lenders will classify a payment that is past 30 days due as late, however some lenders will wait until 60 or 90 days before classifying a payment as a debt.

It’s important to act quickly when you consider outsourcing a debt to a third-party collector. The longer you wait the more difficult your debt will be to recover. What’s more, older debts are usually harder to recover which often results in it costing more to outsource to a third-party agency for collection.

Is it worth outsourcing to a commercial debt collection agency?

One of the biggest concerns when outsourcing to a debt collection agency is that it will change their relationship with the debtor. This leaves many businesses reluctant to approach their customers about late payments. Commercial debt collection agencies will take a professional approach to collecting your debt, preserving your business relationship with your client.

Get more information about collecting your commercial debts from our expert team at Darcey Quigley & Co.

Morgan Ramage
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