When to Start Collection

When to Send Accounts for Collections

Turning to a collection agency should never be a last resort. A professional agency properly licensed, bonded and insured will help you realize the maximum dollar recovery on your past due accounts while safeguarding your relationships with your customers. The use of a collection agency should be considered a partnership with a common goal to maximize you recoveries and limit your bad-debt write-offs.

A creditor can be their own worst enemy when it comes to collections by failing to recognize the proper use and purpose of a collection agency. Too often a creditor holds off too long or does not send an account for collections at the right time because they don’t want to lose the commission or fees paid to the collection agency. The end result is a 100% loss on the account.

One of the most frequently asked questions by a creditor is: “When should I place an account with a collection agency?” Some creditors or people try to seek a specific point in time when an account should be placed with a collection agency. A lot of collection agencies will advise a creditor to gauge the correct time strictly by “age”. Although age is an important factor that can be easily implemented, it can also have the reverse effect on debt recovery and cause a creditor to lose the money all together.

“Age” is an important factor when determining when to place an account with a collection agency. The most common frame of time is when an account hits 120 days delinquent (90 days after the invoice date). Although 120 days is a good guideline, time frame or “age” means nothing unless the creditor has made valid attempts within the time frame to effect collection of the debt.

The most important exception to the “age” factor is account history. Capital Credit & Consulting has always believed and maintained that each individual account needs to be evaluated on its own merits and history. Creditors whom have the ability to evaluate each account in the aforementioned manner experience a higher rate of recovery at an expedited rate. Creditors who have a high volume of accounts may not be able to evaluate each file individually and therefore rely on “age”, but those who can isolate the accounts that are unique because of circumstance or history, increase their recovery rates. A creditor need not wait for 90 days or 120 days to determine if the services of a professional are necessary. Within days or weeks the need for professional assistance can be determined by being aware of account history.

The following provides a guideline to events that should result in prompt forwarding to a collection agency:

  1. Two or more broken promises of payment.  Payments were promised, but nothing has been received and the customer will not reissue immediate payment by personal delivery, courier or any other expedited service that is traceable.
  2. Your customer does not return your calls or respond to your correspondence.  This in contrast to the ease the customer could be reached when they needed your goods and/or services.
  3. “The cheques in the mail” and has been for quite some time, or payment has allegedly been sent repeatedly but never seems to arrive.
  4. The customer repeatedly requests documentation or proof of the debt although it has been provided previously. Sometimes more than once.
  5. Your customer indicates that despite your credit terms, they have their own terms.
  6. Your customer has been paid for the goods or services you provided, that they in turn supplied or provided to a third-party, yet they cannot or will not pay you.
  7. Your customer tells you that they want to pay but simply don’t.
  8. Every time you speak to your customer, they give you a different story.
  9. Your customer claims there are deficiencies, but fails to prove them to you; fails to give you the opportunity to remedy the problem; or fails to provide you with invoices and supportive documents showing any expense incurred rectifying the problems.
  10. Lies, lies, and more lies.

Any of the aforementioned can take place over any time frame. The increased probability of collection will be determined by how quick you list the account for collection after any of the aforementioned occurs.