Many companies fall in love with their accounts receivables and do not manage the collection process properly. Based on the Commercial Law League the likelihood of getting paid on a past due invoice declines roughly 1% per week. By the time a receivable becomes 90 days past due there is a 26% chance the debt will be uncollectible.
Companies should establish a clear collection policy for billing and collection of debt. A basic collection policy should include, but not limited to, the following:
- Credit review prior to the debt
- Signed contract or agreement with a statement regarding collection cost for failing to pay
- Invoice quickly and accurately
- For Medical debt co pays and deductibles should be collected on date of service
- Establish terms for payment
- Follow up quickly once a debt is not paid within the terms
- Follow up should include telephone calls, letters, and emails
- Establish when the debt may be uncollectible and be prepared to send the debt to a collection agency.
Collection agencies work on a contingency commission fee. This means you do not pay anything unless the debt is collected. The Agency then subtracts their fee from the amount collected and sends the client the remainder. The contingency fee a collection agency charges varies depending on the type business, amount of debt placements, and balance sizes. The fee range could be between 15% and 40%.
Collection Agencies require a signed contract which spells out what the agency will do and what the client is expected to do. The fee structure will be listed in the contract as well as any other fees, if applicable.
When hiring a collection agency make sure they are licensed and bonded and have been in business for a minimum of 5 years. An agency should also have the ability to contact the debtor in various ways: letters, telephone calls, and a dialer system. In addition, efficient agencies also have in place a method for scoring your accounts against industry averages. Scoring provides an agency addition information which increases the likelihood of collection.
Move your accounts to an agency quickly and let them help you!