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Are you a small business that has mounting unpaid invoices? Do you not have sufficient staff to make collection calls? It may make sense to hire a debt collection agency. They can collect your unpaid bills and strengthen your finances, all for a very affordable fees.

Small and home-based businesses cannot escape the probability of dealing with bad debts. Whether an uncollected debt is the result of real shortage of funds at the customer’s end or her being a habitual nonpayer, overdue amounts need to be collected on priority to avoid loss to business. Business owners should have a sensible action plan to deal with these eventualities effectively. Collection agencies are a viable option for small and home businesses without the required bandwidth and resources to collect bad debts adeptly.

Sporadic overdue debts can be adjusted in the balance sheet, but too many of such unpaid invoices put pressure on the cash flow. If the worth of the bad debts is large enough to justify the price of hiring a collection agency, it is the best bet to get your money from defaulting clients.

What to look for in a collection agency

A collection agency works on your behalf and it should conform to your policies and customer service standards. Clients will perceive the collection agency as an extension of your business and any impressions they form will definitely have some effect on your relationship with the customer. Therefore, you should evaluate a few key points while deciding on a debt collection agency, such as:

* Familiarity working for similar business size and kind: Shop around for a collection agency that has worked with small and home-owned businesses and understands their way of operating.

* Experience with collecting from similar businesses: A collection agency that has previous experience working with clients often seen by businesses of your type and size has a better chance to succeed. Individual debtors and commercial debtors are completely different and have to be handled differently.

* Skip tracing: Many times, customers shift houses without informing businesses of their new address or have their phone lines disconnected. Collection agencies use skip tracing – accessing multiple databases – to track down evasive customers and communicate with them over the unpaid bill.

* Type of collection strategies: Run a check on the collection agency’s approach towards collecting debts. If the agency has achieved reasonable success by sending out letters to delinquent customers, review them yourself to ensure it complies with the Fair Debt Collection Practices Act. In doing so, you safeguard your customer relationships. Respectfully yet resolutely scripted communication can get customers to pay the debt and also keep doing business with you.

* Errors and omission insurance: Collection agencies and hiring businesses are sheltered from liability by the Errors and Omission insurance if unhappy non-payers file a suit against the strategies employed to collect the owed money.

* Licensing issues: The collection agency should have the legal right to practice debt collection in areas inhabited by the debtors. Or the agency and your business may have to face charges of unlawful debt collection without a license.

* Collection agency rates: Collection agencies work on set charge or contingency rates. The contingency rate is a percentage of the total debts collected. It is recommended that you do some math with the collection agency’s success rate and contingency rate before picking out the pricing option. Assess what each option will cost you in both scenarios – fixed versus contingency, and select the one that works best for you.

Bad debts weigh down every business but they can are particularly risky for small and home businesses that do not have the necessary resources to protect them in lean periods. Collection agencies are a sensible choice as even after deducting their fees, you end up getting more than what you would if you pursued the bad debts yourself.

Daljeet Sidhu is at Tradeseam B2B Marketplace. Read our Collection Agencies advice. Sellers join for qualified leads.