Unpaid debts can become the bain of your company – dragging down your profits and diminishing any possibility for growth. Your business may not be prepared for the financial strain caused by consistent and persistent defaults, and even if you are, you may anticipate the challenging undertaking.
The consensus is that with repetitive requests and iron-clad agreements in place, retrieving debt is straightforward. Unfortunately, this is not the case. To retrieve debt, you need a robust debt collection strategy that relies on the expertise and resources of legal professionals.
Should You Have a Collection Department?
Depending on the size of your company, in addition to your industry, having a debt collection department is logical. Such a department allows you to make first contact with a defaulting customer and develop a schedule for prompt repayment. In some cases, this approach could work to get customers who aren't willfully defaulting to pay up.
However, most customers are willfully defaulting. Because when customers start defaulting, it is an indication they have not prioritized their repayment. Your reminders or threats about their credit score aren't enough to inspire them to act on their delinquency, as these aspects may not also hold much importance to them.
Rather, the benefit of a collection department is to help you consolidate your delinquencies, track a customer, how much they owe, their first default and attempts to retrieve payments. But, to get them to pay, you should rely on a collections law firm.
Collection Law Firm vs. Debt Collection Agency
Now that you understand why an in-house option isn't very effective, you'll need to decide between using a collection law firm and a debt collection agency.
Collection law firms should be your preferred choice because they quickly recover delinquent accounts.
Typically debt collection agencies can only take the same actions an internal department can: making phone calls and sending letters. Rarely they may employ the services of a private investigator or other software to track and trace a defaulting client if the contact details you give them aren't correct.
However, beyond these actions, they cannot prompt a delinquent customer to repay the amount owed. They will also need to use a collection law firm to do this.
Most agencies are reluctant to do this as the expense is not billable. The result is a months-long, if not years-long battle, to get a customer to pay, all while your company foots the bill.
A collection law firm, however, only takes legal action to bring the account up-to-date. The fear of legal action escalating is enough to force most customers to act on their delinquent accounts.
