Why You Should Outsource Your Debt Collection in 2016

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Is it time to outsource your debt collection?

Many Australian businesses are now seeking professional help to recover overdue accounts due to growing debt levels, rising bankruptcy rates and positive industry reform from revised debt collection guidelines issued last year.

If you’re thinking about hiring a debt collection agency or lawyer to conduct collections on your behalf in 2016 then the process can be daunting, we agree. Firstly, we find that business owners are typically on the back foot wondering when is the right time to recover outstanding debt while also having concerns about harming existing business relationships especially if a particular client is a large percentage of your business income.

Secondly how do you find a collection agency that will treat your clients with the utmost respect, so you don’t harm existing relationships, while also having your best interests at heart and the ability to recovery money fast?

Here are effective ways of mitigating customer debts, plus some considerations for escalating debts to professional collectors.

It all starts with good internal processes

Prevention is always better than cure. Keeping your customer accounts in good shape can save significant financial strain of accounts becoming overdue. There are a number of ways businesses can manage customer credit effectively:

  • Set enforceable credit terms tailored to you and your customers
    Before the transaction occurs you must have clear terms of trade in place. Having a terms and conditions of the transaction clearly outlines the responsibilities and expectations of all parties and provides you with a written agreement for conducting business together.
  • Communicate your credit terms clearly
    If you have credit terms in place then make sure you broadcast those clearly to your clients. Within the initial discussions between you and your client it’s important to clearly articulate your credit terms at multiple touch points in your sales process. To adhere to new debt collection guidelines, you must also keep accurate records of all contact you make with your debtors. Your terms of trade should be signed and agreed upon before you provide any products or services.
  • Performing customer credit checks
    Australia’s Comprehensive Credit Reporting (CCR) laws make it easier for businesses to build credible credit profiles for their customers. Research has shown that only 17% of businesses credit on new customers. Before you agree to conduct business with a business or individual a credit check can be used to reduce your risk and allow your business to make informed decisions on potential customers’ or vendors.

So when should you outsource debt collections?

Chasing overdue accounts is not only time-consuming but it can be incredibly stressful often giving businesses owners and overwhelming amount of anxiety. With new debt collection guidelines it also means that it involves significant paperwork, a proven process and many hours of due diligence to keep on top for all of your requirements.

Debt that is overdue by as much as 6 months has as little as a 47% chance of recovery so it’s important you have a collection process in place that allows you to have the best chance for recovery. So with that in mind how do you know when it’s the right time to outsource your debt collection.

You/your staff are overworked and stressed

Debt collection often falls outside many internal processs and staff requirements because staff are already overburdened completing their day-to-day tasks. Although a credit collection process can be consistent it’s highly varied due to interactions with different clients and situations which means that one collection may take considerably more time than another. Therefore it’s very easy for staff to be over-capacity or require longer hours at work to maintain their duties.

The start of 2016 is a great time to speak with your staff, but we recommend as regular as possible, and schedule some team catch ups to determine if debt collection responsbilities are affecting their work performance.

You’re spending more time on debt collection rather than on your business

Time is the ultimate currency and as a business owner it’s so easy to be caught up in the operations of your business rather than the growing your business. If you find that you’re spending more time on chasing clients and unpaid debts then not only is this costing your business financially it’s also costing your business in it’s opportunity to grow.

Debt collection is hard work as it involves determining overdue accounts, sending reminders, compiling letters of demand to customers with overdue debt, making initial phone contact and then constant follow up. If faced with a difficult customer, debt collection is not a task that can be completed in a few days or even a few weeks – the process can stretch out to months especially if you require legal proceedings.

You’re having trouble keeping tabs on your debtors

The problem is compounded when you need to keep track of debt owed by multiple customers, especially if they all have different deadlines. Not only do you need to do with multiples you’ll also need to prioritise the accounts that owe the most money versus the amount of time the debt has been outstanding. As mentioned debts greater than 6 months have less than 50% recovery so you need to be fully aware of the time that has passed so that you can prioritise where it will count.

Debt collector or lawyer?

Many businesses deliberate over whether to use a lawyer or a collections agency for their debt collection. While lawyers bring extensive legal expertise, they tend to be more expensive, charging an hourly fee as well as a percentage of the recovered amount. If legal proceedings take place, additional legal and court-related fees may also apply.

Although generally more affordable than lawyers, collection agency fees can vary along with their rates of success. To ensure professional handling of your customer accounts, use a collections agency accredited with the Institute of Mercantile Agents, the Australian Institute of Credit Management and ACA International.

At JMA Credit Control we use an in house lawyer so you have the best of both worlds with an accredited collection agency in Melbourne to collect on your behalf.

Written by Richard Thompson

Richard Thompson is the Managing Director and owner of JMA Credit Control and has over 25 years’ of trusted experience. Richard has a wealth of knowledge in Credit Management and Debt Recovery ensuring client’s recovery bad debt quickly and cost effectively.

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