When a client or customer fails to pay an outstanding debt, businesses may need to escalate the matter by sending the account to a collections agency. This process helps recover unpaid debts while allowing business owners to focus on operations instead of chasing payments. However, sending someone to collections should be done carefully to ensure compliance with legal regulations and to maximize the chances of successful recovery.

1. Determine If the Debt Should Be Sent to Collections

Not all past-due accounts need to be sent to collections immediately. Before doing so, consider:

• Age of the Debt: The older a debt becomes, the harder it is to collect. According to a study from the Federal Reserve, the probability of collecting a debt drops significantly over time, with businesses recovering only 20% of accounts that are more than 180 days overdue (FederalReserve.gov).
• Customer Communication: Ensure that you have made reasonable efforts to contact the debtor, including emails, phone calls, and written reminders.
• Legal Considerations: Review your contract or agreement with the debtor to confirm payment terms and determine whether late fees or penalties apply.

2. Choose a Reputable Collection Agency

If internal efforts fail, hiring a professional debt collection agency may be necessary. When selecting an agency:

• Verify Licensing and Compliance: Ensure the agency complies with the Fair Debt Collection Practices Act (FDCPA) and any relevant state laws.
• Understand the Costs: Agencies typically charge 15% to 50% of the collected amount, depending on factors like debt age and difficulty (GAO.gov).
• Check Industry Experience: Choose an agency familiar with your industry’s typical payment disputes and regulations.

4. Provide Necessary Documentation

To improve the chances of successful recovery, provide the collection agency with:

• Copies of Invoices showing the outstanding balance.
• Signed Contracts or Agreements that outline payment terms.
• Correspondence with the Debtor, including emails, payment reminders, and demand letters.

5. Monitor the Collection Process

Even after sending an account to collections, businesses should:

• Stay in Contact with the Agency: Request regular updates on progress.
• Review Collection Efforts: Ensure the agency is using ethical and legal methods.
• Consider Legal Action if Needed: If the debt remains unpaid, consulting a legal professional about further options may be necessary.

Final Thoughts

Recovering unpaid debts is critical for maintaining cash flow and financial stability. By following a structured approach, businesses can improve their chances of collecting overdue payments while staying compliant with legal requirements.

If you need guidance on sending an account to collections or selecting the right agency, contact us today for expert assistance.