Cash Management Secrets

Proven cash management strategies that improve cash flow, collect past due money, and increases profits in tight credit markets.

Different Types of Collections Agencies

If using collections will bring in late accounts at a lower cost then addressing the issue in house, then which type of collections firm do you use. Here are some of the different types of collections agencies and why you might consider each.

There are also different types of collections companies, some fee for service, some percentage collected, and others are contract basis. You'll also find their methods differ from early soft collection to hard "beat them down and take their wallets" collection. In another article I'll cover collection methods.

Types of Collection Agencies

• First Party Agencies. Collections as part of the original owners of the debt. This may include an internal department in your organization, or a subsidiary of the debt holding company.
• Fee for Service. Collection agency pursues your account for a fixed rate, usually determine by account value. You only pay this fee, collected or not.
• Contingency Collections. The agency charges a percentage based on the amount to collect and age of the account. You get back the remaining percentage of each amount collected.
• Industry Focused Collections. These agencies focus on a specific type of debt collection. For example, they may specialize in medical debt, automotive loans, consumer, or business debt.
• Bad Check Recovery. Focusing primarily on making good bounced checks through direct draft systems, money order, and other cash based fulfillment. You usually pay a fee based on the time it takes to collect.
• Receivables Factoring. While not technically a collections agency, this type of firm helps you get paid faster by purchasing outstanding debt. They will collect on anything not paid in full, but usually focus on buying only current receivables.

The type of agency you use depends on the account, your cash objectives, if you want to keep the customer, or the value of an account. Usually younger accounts benefit from a fee for service soft collection.

While I have very few collections issues, I send them off the 61st day if I don't have firm payment arrangements. I use a soft collections firm who I frequently recommend because I often get to keep the customer (i.e. they don't piss them off.) As a small shop I can't afford to work with the account past 90 days.

© 2008 Cash Management Secrets, All rights reserved.

Justin Hitt is the editor of Cash Management Secrets, and helps business increase earnings quickly while getting paid on-time. Read more about collections strategies for your business at http://CashManagementSecrets.com/

Posted by Justin Hitt on September 18, 2008 9:40 AM | Permalink

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