At a glance:
- When friendly remainders and emails fail to recover bad debts, hiring a small business debt collection is worthwhile.
- Small businesses can have several concerns about hiring a debt collection agency, such as the cost, reputation, and compliance with debt recovery laws.
Managing a successful business is a challenging endeavour, regardless of its size. Debt collection is a common financial obstacle that small companies often encounter, and it can be a testing process for business owners. For a business to operate smoothly, a healthy cash flow is essential, and effective debt collection is crucial in achieving this. If friendly reminders and emails fail to recover outstanding debts, it may be a viable solution for small businesses to enlist the services of a small business debt collection agency.
Small businesses may not have the necessary resources or funds to pursue bad invoices independently. This is particularly true when a company has multiple outstanding invoices. In such cases, it can be beneficial to hire a debt collection agency to fix the biggest cause of poor cash flow for small businesses. However, these businesses may have several concerns about hiring a debt collection agency to recover bad debts, such as the cost, reputation, and compliance with the debt collection process. Here we discuss some common concerns in detail.
Cost
Cost is the major concern small businesses have when the need to hire a small business debt collection agency arises. By definition, small businesses have limited resources to run their in-house operations, so hiring a debt collection service can stretch their finances.
Small businesses have the option to engage debt collection agencies based on either upfront fees or commission-based arrangements. In the former, the agency charges a predetermined fee, regardless of the outcome. In contrast, the latter entails a commission rate based on factors such as age, complexity, and amount of the debt collected.
Small businesses can hire agencies that work on a ‘No Recovery, No Charge’ policy to overcome the financial concerns of hiring a debt collection agency. Agencies with such policies can save business owners valuable time and resources, which owners can utilize to run their core business.
Reputation
In the business world, building and maintaining a good reputation is crucial, as it takes time and effort to earn but can be quickly lost. Therefore, business owners must be diligent when selecting a debt collection agency for small businesses. It is essential to choose an ethical and reputable agency that is licensed and strictly adheres to legal debt collection practices. To avoid negative repercussions, it is crucial to ensure that the agency does not resort to unethical or aggressive techniques, such as threatening or harassing debtors. Therefore, it is recommended that businesses check the agency’s credentials, reviews, and references before making any hiring decisions.
Compliance with Recovery Laws
In Australia, the debt collection process is regulated by federal and state laws, including the Australian Securities and Investments Commission (ACCC) and The Financial Conduct Authority (FCA). These laws prohibit the use of physical force, coercion, harassment, misleading, or deceiving debtors during debt collection. Failure to comply with these regulations can result in legal and financial consequences for both small businesses and debt collection agencies. Therefore, it is crucial to hire a debt collection agency that is well-versed in the relevant laws and regulations of debt recovery to ensure legal compliance. Business owners should inquire about the agency’s compliance track record to ensure they meet regulatory requirements.
Communication
Clear and transparent communication between the business owner and the debt collection agency is vital to ensure a successful debt collection process. Business owners should choose an agency that provides regular updates on the progress of debt collection, either through calls, emails, or in-person meetings. This ensures that the process is legitimate and there will be no repercussions.
In conclusion, hiring a professional debt collection agency that provides transparent, reliable, and compliant debt collection services for small businesses is essential. Business owners must be proactive in their approach to ensure a legal and rewarding debt collection process that saves time and money.