When Do I Hire a Collection Agency?

When should you hire a collection agency? The general answer is sooner rather than later. The chances of you collection on a debt significantly go down as time passes while the debt is overdue. The longer you wait, the less likely you are to get the money owed to you.
The most important thing you can do is contact the delinquent party as soon as possible after the debt becomes overdue (the day after if possible). Let the party know the debt is overdue and request payment.

You might want to give the party 30 days or so to respond and pay the debt. You don’t want to wait much longer than that to begin a more rigorous process in debt collection. If you do, the critical debt-collection time-frame may slip by, and you may not be able to recover much or any of the debt at all.

Statistically, the probability of collecting on a debt goes down dramatically after 90 days. You definitely don’t want to wait that long. You probably want to get into the debt collecting process a lot sooner and involve a collection agency well before the 90-day critical cut-off occurs. Why wait until the last minute when your chances of debt recovery are on the brink of becoming insignificant?

Other things to consider include the amount the debtor owes you. You might find hiring a collection agency for a very small debt infeasible. This situation, of course, is understandable. You wouldn’t hire a collection agency to recover a $10.00 debt.

You would, however, likely hire a collection agency for a $10,000 debt. You’ll have to decide when hiring a collection agency is feasible financially. What is your cut-off amount? $100? $500? $1,000?

You’ll need to consider the amount owed as well as how important it is to your business to have this particular party pay back the debt. If it’s a party you never expect (or want to) do business with, you may want to hire a collection agency right-away.

Another consideration might be the business relationship you currently have with the debtor and businesses related to the debtors business. For example, you might’ve had a very profitable and long-term relationship with the business with the overdue account up until now. Hiring a collection agency for this particular account might be a bit premature if you want to maintain a good relationship.

Maybe there’s a misunderstanding over the particular account between you and the debtor. You might be able to clear up this misunderstanding and get the debt collected. You should definitely try to ensure both you and the debtor understand the debt, the reason for the debt, and exactly how much they owe you before engaging the services of a collection agency. You’ll want this detailed information anyway, so you can provide it to the agency when they begin the collection process.

Likewise, you might not want to send a debt from a business to a collection agency without first considering how this action might affect your dealings with other businesses. Say, for example, Paul owns a small restaurant and has purchased flowers from your flower shop to put on his tables. Paul’s not paid you back and is now 45 days late on his account.

Paul’s brother, John, owns the funeral parlor and not only orders a lot of flowers from you (and is never delinquent), but also sends business your way. You’d definitely want to think twice before sending Paul’s account to a collection agency.

While this family-related business situation might be rare, you still want to consider these types of implications before hiring a collection agency.
Regardless of all of the considerations, you still need to keep in mind that timing is the most important factor in collections. With all things considered, hiring a collection agency sooner rather than later is always the best policy.