Collection Agencies vs. In-House Debt Recovery Sacramento CA

Debt recovery is an important element of operations for most businesses. Irrespective of type and volume of your business, you are most likely to have some customers who need a lot of follow-up before they pay the amount due to you. This is a difficult fact of the business world, but when money is owed to you, you must consider your options in getting the customer to pay.

One option is, of course, to have an in-house debt recovery department. Hire employees that are skilled in bad debt collection, then set a process of communication between the sales channel, then set debt collection guidelines - and then go for it!

The other option is to outsource your debt recovery to a collection agency.

Let's have a look at the pros and cons of each option:

In-House Debt Recovery Department

Advantages:

Complete control over the debt collection process

You know what your employees are doing. You have a complete picture of their performance. You know what techniques they are using and you are sure that they are not going beyond what is legally allowed.

Knowledge of important customers and hence application of different debt collection techniques for different customers.

When it comes to debt recovery, not all customers are the same. You have some large customers with whom you want to deal cautiously because of the volume of business you get from them. And some customers are small, and in this case recovering the money is more important. An in-house department can have a clear idea about such cases and hence it can use different credit collection techniques with different customers.

Better bad debt analysis to change the payment terms for reducing bad debt and debt recovery efforts.

It is always better to minimize the bad debt rather than spending efforts to recover it. Having an in-house department can help better the analysis of bad debt, suggest better payment terms for certain groups of regularly defaulting customers, advise sales people on dealing with such customers, etc.

Use In-House if:

You run a small business and you have a very small number of defaulting customers.
You are likely to have customers only from a single state.
You understand the collection laws
You want to take on the legal risks of debt collection.

Collection Agencies

Advantages:

No headaches of employee recruitment, retention, compensation etc...

Concentration on the core activities of the business rather than debt recovery.

Collection agencies are in the business of credit collections. Hence they have a better knowledge of collection techniques and are better equipped in terms of skilled employees, infrastructure and resources.

A collection agency is likely to have a better knowledge of the law (like the Fair Debt

Collection Practices Act, etc.) and practices than the in-house departments.

Collection agencies are better equipped to handle debt recoveries from customers in more that one state because of their resources and knowledge of debt collection laws in different states.

Defaulting customers are likely to pay more attention to calls and letters from a collection agency because they know that you have now hired professionals for the debt recovery. The fear of credit rating damaging and credit reporting can create a collection agency 'fear factor'.

Use Collection Agencies if:

- You have a large amount of bad debt.
- You have a customer base spread across the country.
- You don't want to hire and pay for the high costs of full time employees.
- You are not able to trace the defaulting customers.