Any company, small, medium or large that is in the financial sector, always has “receivables” in the form of debts owed by customers. If you look at a statement of annual accounts, there is likely a column that indicates ‘bad debts’ or outstanding. Some of these amounts can be recovered, others not at all, or through lengthy legal proceedings that can span many years. The international accounting firm Pricewaterhouse Coopers (PwC) estimated that in the mid-2000s, external collection agencies were recovering debts to the tune of $ 30 billion annually. This is a huge amount!
In such cases, companies can deal with accounts receivable through internal mechanisms or outsource the collection of such amounts owed to external collection agencies. These are third-party commercial collection agencies hired by the company to use the agency’s skills and resources to recover amounts owed. This agency is called a Debt Collection Agency. These agencies are governed by the regulations of the Fair Trade Debt Collection Practices Act and therefore have the knowledge and experience of the dos and don’ts of debt collection.
There are many benefits to using a debt collection agency, including:
• The internal accounting department of a company is usually responsible for collecting amounts owed to the company; However, “aging accounts receivable,” as long-standing debt is referred to, requires a lot of time, skill, and dedicated effort, which may require intensive training. Since delays can cost the business a lot, a third-party service or commercial collection agency is in tune to handle this work exclusively, and therefore you can get back money that you might otherwise end up with no recovery at all.
• Sales teams of companies to which customers owe amounts sometimes do not pay their commissions or incentives if there is money outstanding from customers. This forces the sales staff to spend a great deal of time working to get the money back rather than making actual sales calls or generating sales for future income. This has a great impact on the income of a company.
• Acquiring new customers is a costly undertaking, but retaining existing customers is a key factor in the success and longevity of every business. Playing the ‘bad cop’ role in debt recovery for existing clients is not a role most companies expect, as it can have an adverse impact on them. Using a third-party service to send debt recovery notices generally encourages the person or business that owes the money to act without seriously affecting the relationship with the business.
• In business-to-business circles, the unwritten policy is to prolong bill payments for as long as possible to allow for better cash flows. In some cases, unless a collection agency steps in to demand payment, checks or outstanding amounts are not released against invoices.
• By paying a collection agency or agent a fixed salary for collecting debts regardless of the amount owed, companies save a lot of money that would otherwise have been spent on paying salaries and additional time and effort to train them to collect dues in a timely manner. effective. Most companies only pay collection agencies when the money is recovered.
Especially for financial sector companies like banks, extending lines of credit to new and existing customers is highly dependent on keeping “old accounts receivable” to a minimum. Only by driving growth can banks achieve their target deposits and income. Therefore, by using a commercial collection agency, the bank can expect to recover amounts early, maintain customer relationships and creditworthiness, as well as ensure that its financial books are kept in a healthy state.