Bad debts are an unavoidable side-effect of extending credit to customers, a strategy adopted by most businesses to acquire more customers. Though small businesses cannot afford accumulation of bad debts, their collection strategy is weak due to lack of resources and a fear of turning customers away. Small businesses can turn around their bad debt expenses by partnering with collection agencies.

Conventional wisdom has been to bring in collection agencies to recover bad debts after all the other options have been exhausted. This is because people perceive collection agencies to be unscrupulous, boorish and unethical. This is untrue of reputed professional collection agencies. In fact, small businesses that have called in collection agencies earlier in the collection recovery process have been able to collect more in less time while maintaining good relationships with their customers.

Professional collection agencies work in compliance with the Fair Debt Collection Practices Act (FDCP Act), send demand letters to customers and follow up with calls and personal interviews, keep the business informed of progress, and work with business to improve in-house practices to reduce bad debts at the onset. Because of their professionalism and expertise, collection agents build a good rapport with customers making them amenable to settlement or negotiation. They also have the experience to identify customers who are tough cookies and can advise the business owner to report them to credit reporting agencies or file a lawsuit.

Small businesses should search for a collection agency familiar with their industry, scale and practices; vet it carefully; get references from other clients; verify performance records, business policies and collection strategies. After all, the attitude of the collection agency will affect the business’ customer relationships. Once a small business zeroes in on the right collection agency, it can look forward to many fruitful years of working together resulting in mutual benefits.

Tags: Bad Debt, Collection Agencies, small business

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