Things to Consider When Dealing with Unpaid Invoices for Your Small Business

Dealing with past due invoices is part of any business, large or small.  How each company deals with them can make a significant impact on overall profit margins.  Nothing magnifies this more than the economy slowing down.

So far, 2020 has proved how important staying on top of your receivables process is.  Moreover, how important it is to have a plan in place when accounts head south.  Having your own employees chasing past due accounts takes them away from their role within the company and more than likely will do nothing more than frustrate them.  The first contact made after an invoice becomes delinquent often times determines whether or not the bill ever gets paid.  Coming across as nonchalant may lose any urgency for the consumer/business to get the account paid.  The more time that passes, the less likely the invoice ever gets paid.  Coming across harshly can create animosity towards the company and again delay payment or result in the invoice going unpaid as well.

Collection agencies have been around since the creation of the invoice.  Giving the consumer time to pay is a necessary part of most businesses.  It’s almost inevitable that some of these accounts will become delinquent.  Agencies have been a proven resource to help recover past due invoices.  They serve both large and small business and help ensure their right to get paid.  States have their own laws governing debt collection practices.  In many states, these laws apply to the original creditor as well.  Violating these laws can result in a costly expense for the business.  In a land where lawsuits are common, its better left to an agency that understands these laws and takes on the risk.  Whether or not the lawsuit is legitimate or frivolous, there can be an enormous expense involved to protect the company.  No industry understands this better than the healthcare industry.  Professionals within this industry have insurance that helps protect them.  It’s common for most medical practices to have an in-house process to deal with past due invoices, and it’s also a standard practice to transfer delinquent accounts after 90 days.  The healthcare industry understands the importance of time and usually follows a strict timeline for turning over delinquent accounts.

Most businesses carry both business to business (B2B) along with consumer debts (B2C).  Collecting each type of these debts requires a knowledge of both and the process is completely different.  Business debt recovery is made by phone calls with legal action available once collection efforts have exhausted.  Recovering consumer debt involves a letter series as well as agents calling the accounts.  Most collection agencies work solely off a contingency fee.  Typically, the fee charged on B2B is less than you will find on B2C debt.  In both cases the contingency fee is based on factors such as the age of the debt and overall dollar amount.  The older the debt, the higher the contingency fee.  The recovery rate for business accounts is typically higher than consumer accounts with business debts around 60% and consumer around 30%.  Again, recovery rates on viable debt are highly dependent on the age of the debt.

The biggest mistake made when choosing an agency is finding one that charges the cheapest rates.  We get what we pay for right?  In many instances an agency with lower rates also has a revolving door with employees coming and going.  A good reputable agency will retain seasoned agents and have no place for rouge and under-trained or inexperienced agents.  An agency that charges more on contingency will in most cases collect more.  Thereby, remitting more money back to their clients.

A good reputable agency will also do their own due diligence on the clients they bring aboard.  It is just as important for the agency to accept debt from a viable company as it is for the company to find a solid viable agency.  Any such agency will do the necessary skip tracing and background checks one any placed accounts before a letter is ever mailed or a phone call is made.  These agencies will ensure that they weed out any bankruptcies or litigious consumers.  Not only does this help in the success rate, but also helps eliminate any costly lawsuits.

It’s always beneficial to find an agency that is licensed to collect nationally.  If there is a case where the individual has moved to another state and it’s important that the agency assigned has the state knowledge and license to pursue the debt in that state.

There are well over 5,000 debt collection agencies within the United States.  Always ensure that the agency you choose is FDCPA, FCRA, and HIPAA compliant.  Review their Better Business Bureau reviews and ratings.  A good agency will work hard to keep the relationship established between their client and the consumer whenever possible.

Troy Funk, Business Development

Midwest Fidelity Services, LLC