Businesses of all sizes have to deal with the challenge of unpaid invoices at different times. Debt collection is crucial to ensuring cash flow and financial stability. While businesses may choose to manage debt collection internally, there may come a point where that approach becomes ineffective and even poses problems for the business.
The ability to identify when your business requires professional debt collection services is a strategic move that can save money and time and prevent potential complications.
Key signs your business needs professional help
- Increased default rate: When dealing with unpaid invoices, defining and implementing initial recovery steps is necessary. These may include reminders, follow-ups, and formal notices. Staying in contact with debtors could give you insight into their reasons for default, which a business can then choose to reach a mutual solution. However, if all this fails, it may be time to hire a debt collection agency. Debt collectors are well-versed in recovering invoices, are familiar with local laws, and typically work with a contingency model.
- Lack of internal resources: Assigning team members to follow-up invoices may not seem like a big deal, but it could decrease productivity. Debt recovery is a demanding and time-consuming process that requires resources businesses don’t have. Engaging a debt collector improves productivity because teams can focus on their core responsibilities.
- Changing debt recovery regulations: Debt recovery is a complex process requiring extensive knowledge of federal and state debt recovery laws and regulations. However, because business and transactional laws are changing, it can be difficult to keep up with updated regulations. By choosing a debt recovery agency, you can avoid these mountains of paperwork while the professionals carry out debt recovery compliantly. For example, laws governing debt collection in California prevent collectors from calling debtors at certain hours – this is something an agency is aware of that you won’t have to worry about.
- Legal complexities: Legal processes in debt collection can be time-consuming and complicated. Specific legal laws guide debt collection from state to state. In-house collection practices may unwittingly disregard these regulations, which could lead to legal fines.
- Uncooperative debtors: Debtors who refuse to pay may become difficult, uncooperative, and unreachable. Employing internal efforts to recover such debts may prove futile. However, debt collection agencies have databases and tools to locate debtors. Agencies involved in debt collection in Los Angeles use these tools and their network to track down and recover payments swiftly.
- Debts exceed 90 days past due: Having multiple debts over 90 days past due is a sign that you need professional debt recovery intervention. These debts are hard to collect, and the likelihood of their recovery is diminished. California has a four-year statute of limitation for filing a lawsuit to recover a debt. When debts become overdue, a business may not be able to sue. However, debt collection agencies can still apply specific strategies and tools to track down and collect time-barred debts.
- Time investment challenges: When a business discovers that in-house debt recovery efforts are consuming the same value in terms of time and resources, it may be time to call the professionals. DIY debt recovery costs may seem low initially, but they consume valuable time and resources.
- Dealing with complex contracts and high-value debts: Complex contracts, international transactions, and high-value debts present high-risk challenges in debt collection. This may be due to unfamiliar international laws, legal systems, and language barriers amongst others. Relying on in-house debt collection in Los Angeles, which is a competitive and high-stake market, may prove costly to the business. Instead, a professional debt collection agency can ensure that invoices are pursued while adhering to international laws.
How to choose a debt collection agency
- Start by researching reputable agencies with extensive debt collection experience in your locale. For example, a simple Google search for “debt collection California” will yield numerous results.
- Compare three or more agencies based on the size and needs of your business.
- Assess their collection methods, communication style, and recovery approach to ensure they are ethical and align with your business values.
- Evaluate the technology and tools they use for debt recovery.
- Compare pricing, ensure they are compliant with state requirements, and make a decision.
Conclusion
DIY debt collection may suffice for a while, but strategic outsourcing of debt recovery may be the answer to stabilizing your business’s cash flow with effective debt recovery. When a business starts noticing a high rate of ignored invoices, uncooperative debtors, time-barred debts, and strained client relationships, it may be time to transition and secure your business’s finances.
