Cash flow problems can sink a business, but it’s a fact of life that not every invoice is paid on time. With established partners and customers it’s good to give some leeway to maintain good relations, but there comes a time when you need to call those debts in.
If prompt payment isn’t looking likely, it’s usually easier and cheaper to hire a debt collection agency rather than tie up your own business resources chasing the money. But it’s also important to choose an agency wisely. Here are five questions should you ask a collector before signing them up.
1. Which Industries Have You Worked In?
Different industries have different standards for payment timescales and acceptable collection methods. For example, when chasing a debt with a large multinational, stronger and more direct measures can be used than with a small mom-n-pop outfit, where offense can be taken more easily.
Asking which industries the agency has operated in will let you see whether they’re a good fit for your own. And even better, ask if you can speak with references from companies of a similar size and sector to your own.
Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay their invoices, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.
2. What Do You Charge?
It’s important to know the fees the agency will charge, set out in black and white from the beginning. Are all fees dependent on the debt being recovered? Do they charge on a case-by-case business, or offer a lower commission in return for a retainer?
Different fee scales fit different businesses, so it’s important to discuss this beforehand. Most agencies will have options to suit different business needs and volumes, and can adapt their service levels to your needs.
3. What Training Do the Collectors Have?
It’s vital that the agency treats your debtors—your customers—well at all times. Remember, the agency will effectively be the face of your company during collection. If they behave badly, you’ll risk gaining a poor reputation as well as souring existing relationships.
And what’s more, debt collection is a highly regulated activity. If the agency crosses a legal line, you could also be held liable for their actions.
Asking the agency to show proof their employees have been properly trained and know how to behave will help set your mind at rest.
4. How Do You Update on Progress?
One of the main benefits of hiring a collection agency is that it reduces the load on your own finance department. This advantage is canceled out if you then need to chase up the agency for progress reports. Always find out what type of updates you’ll receive, how often, and what you can do if you have a query.
5. What Makes Your Agency Different?
There’s no shortage of debt collection agencies from which to choose. Before hiring, ask what makes that particular agency different, and why you should select them. There’s no right answer to this question. But if the agency can’t provide one, they’re probably not the most proactive and professional operation, and you may want to look for a more dynamic outfit.
The Bottom Line
With luck, a collection agency will recover your debts on time and with no hassles, boosting your cash flow and preserving your business relationships. However, asking these questions first will help make sure this is exactly what happens, and that handling debts doesn’t turn into a quagmire that holds your business back.
About Universal Funding
Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.