Every company, small, medium or large that is in the financial sector always has ‘income receivable’ in the form of customer debt. If you look at an annual statement, there is likely to be a column that says ‘bad debts’ or pending due. Some of these amounts can be recovered, others never, or through lengthy legal proceedings that can go on for many years. The international accounting firm Pricewaterhouse Coopers (PwC) estimated that in the mid-2000s, third-party collection agencies collected debts to the tune of $30 billion annually. This is a huge amount!

In such cases, companies may deal with accounts receivable through internal mechanisms or outsource the collection of such amounts due to external collection agencies. These are commercial third-party collection agencies hired by the business to use the skills and resources the agency has to recover amounts owed. Such an agency is called a Debt Collection Agency. These agencies abide by the regulations of the Fair Trade Debt Collection Practices Act and therefore have the knowledge and experience of the do’s and don’ts of debt collection.

There are many benefits to using a debt collection agency, including:

• The internal accounting department of a company is usually responsible for collecting amounts owed to the company; however, ‘old accounts receivable’ like long-term debts require a lot of time, skill and dedicated effort, which can require intensive training. Since delays can cost the business dearly, a third-party service or commercial collection agency is tuned to handle this job exclusively and thus can recover money that might not otherwise be recovered at all.

• Sales teams at companies that are owed amounts by customers are sometimes not paid their commissions or incentives if there is money outstanding from customers. This forces sales people to spend a great deal of time working to make money instead of making actual sales calls or generating sales for future revenue. This has a huge impact on a company’s revenue.

• Acquiring new customers is expensive, but retaining existing customers is a key factor in the success and longevity of every business. Playing the role of ‘bad cop’ in recovering debt from existing customers is not a role most businesses expect, as it can have adverse impacts on them. Using a third-party service to send debt collection notices generally encourages the person or business that owes the money to take action without seriously affecting the relationship with the business.

• In business-to-business circles, the unwritten policy is to prolong bill payments as long as possible to allow for better cash flows. In some pending cases, unless a collection agency steps in to demand payment, checks or amounts are not released against bills.

• By paying a collection agency or agent a fixed salary for collecting debts regardless of the amount owed, businesses save a lot of money that would otherwise have been spent paying salaries and extra time and effort training them to collect effectively. Most companies only pay collection agencies when money is recovered.

Especially for companies in the financial sector, such as banks, extending lines of credit to existing and new customers depends heavily on keeping “old accounts receivable” to a minimum. Only by driving growth can banks succeed in achieving their target deposits and revenues. Therefore, by using a commercial collection agency, the bank can expect to recover amounts early, preserve customer relationships and creditworthiness, and ensure that its financial books remain healthy.