How to Send Someone to Collections

If you run a business that offers credit lines to customers, it can become inevitable to have to send someone to collections. Whether it’s a tenant that has unpaid rent on a property or another debtor that owes you funds, learning proper debt collection practices is important. If it’s your first time doing this, it can be intimidating to figure out how to do it correctly and you must follow the Fair Debt Collection Practices Act to do it legally.

Fortunately, there’s a regulated process involved in sending someone to collections, so you can feel comfortable knowing you’re doing it right if you follow these steps.

What Is Collections?

If you have a customer who has a delinquent account with you, you have the opportunity to send them to a collection agency. Of course, this should be a last resort solution, but it’s important to know how to do it correctly as a creditor, for if you have a customer with unpaid debt that you need to collect.

What to Do Before Sending Someone to a Collection Agency

When it comes to sending someone to collections, most experts agree the best practice is waiting 90 days before you send their debt to a collection agency. While in the 90-day waiting period, it’s important to follow the right steps to make sure you’re doing your part to collect on the past due funds.

Resend the Unpaid Invoice

Give your customer the benefit of the doubt and assume they simply forgot to pay their bill. With how busy we all are, it’s common to plan to pay a bill. Then, it simply slips your mind, which leaves the bill unpaid.

Many times, sending the invoice again will be all the reminder your customer needs to pay their unpaid bills.

Talk to Your Customer

After sending out the invoice again, if you still haven’t collected the money owed, call the customer or email them to give them another reminder. Having a conversation can help you understand why your customer isn’t paying their bills with you, and allow you to come up with a payment plan that will work for you both.

Contact a Lawyer

If you’ve taken the two steps above and still haven’t collected on the unpaid debt, then your next step is to contact a lawyer, who will help you create and send a demand letter also known as debt collection letters. A demand letter is a formal letter that explains the consequences that will be taken if the debt remains unpaid.

Make sure you don’t threaten legal action without discussing it with your lawyer first. However, many times people will make payments simply out of fear of legal action.

What NOT to Do While Waiting to Hire a Debt Collection Agency

While it’s important to follow the right steps before you send someone to collections, it’s also important to avoid certain actions that some small businesses have been known to do when a client owes money.

Don’t Make Constant Phone Calls

While it’s recommended to reach out to try to have a customer pay on their account, it’s not a good idea to harass them when they owe money. In fact, there’s a federal law in place that forbids any debt collection phone calls from being made before 8 a.m. and after 9 p.m. Make sure to abide by this, or you may be facing legal action.

Don’t Call Their Work

Federal law also prohibits you from calling your client at their place of work to get their invoice paid. The only exception to this is if they give you specific permission to call them at work.

Don’t Threaten Legal Action Beyond Lawsuits

While we recommend reaching out to a legal professional to develop demand letters, it is important not to make threats unless you’re planning on taking the client to small claims court. If you’re hiring a collection agency, they aren’t able to sue the client for you, so if you plan on sending someone to collections, keep legal actions out of your conversations.

When Should You Hire a Collection Agency?

If you’ve followed the steps above and still haven’t received payments from your customer, you may be considering hiring a collection agency. This decision can often come down to the individual situation and the amount owed. It is often less expensive for the business owner to send an account to collections rather than hiring an attorney and taking the customer to small claims court.

If you don’t have someone at your business who has experience collecting unpaid debts, getting a collection agency involved is likely a good choice. These agencies have experience in the collections process and will be able to help their clients collect payments on the debts. While you often shouldn’t expect to receive the full outstanding amount, many businesses can receive payments of many different amounts.

How to Choose a Collection Agency

Once you’ve decided you need to send your customer to a collection agency, you have to decide which debt collection agency is the right one for your business. It’s vital to choose a good collection agency to have the highest chance of collecting on the unpaid invoices.

Research

It’s recommended to do extensive research before you hire a collection agency. Talk to other small business owners and see if they have an agency they recommend. If you aren’t able to get personal recommendations, simply search online for collection agencies in your area. From there, take the time to read the reviews from previous clients to see how the agency handled the collection process.

It’s also a good idea to check out the Better Business Bureau to see how past clients felt while dealing with the collections agencies you’re considering. The Better Business Bureau will also allow you to find agencies that are accredited, so you can feel more comfortable about the agency you choose to work with as a small business owner.

Learn About Collection Agency Fees

Once you’ve narrowed down your search, you will want to look at the fees that collection agencies charge their clients. Most agencies charge a commission fee of between 15% and 50% of the debt collected. The fees are determined based on the type of debt and how much the agency plans to put in effort to collect that debt.

When you’re choosing a collection agency, it’s important to be realistic about the likelihood that they will be able to obtain the money owed. Factors that go into this are the age of the debt, who you’re trying to get the money from, and what documentation you have.

For example, the collections agency is more likely to receive payment on a debt that is between two businesses, has some paperwork to back it up (such as a letter proving nonpayment, a contract, or other legal resources), and is a more recent debt.

The easier the agency determines their client’s debt will be to obtain, the less they will charge in fees. If the client comes with a difficult debt to collect, then it’s likely that the fees will be closer to the 50% mark once the debt is paid, if it gets paid.

Reach Out to the Collections Agency

Once you’ve settled on a collection agency you feel good about, it’s important to make a phone call and ask them some questions to determine if you all will work well together to collect debts.

Some questions you may want to ask include:

Can the rate you’re charging change at any point during the collection process?
What steps will you take in the debt collection process? (a good agency will give you a detailed breakdown of their company process)
How will I stay updated on the process?
What is expected of me as a client?
What experience do you have with this type of debt collection?
What should I expect once the debt is collected?

Asking these questions will help you determine if the agency is a good choice for your debt collection efforts.

Red Flags With Debt Collection Agencies

When you’re choosing a debt collection agency, it’s important to stay alert to potential issues during the collections process.

Very Few or No Reviews

When you search for debt collectors, you want to avoid ones that don’t have a lot of reviews, just like you want to avoid ones with poor reviews. The lack of reviews is a sign that the company hasn’t been established very long, and that may not be in your best interest as a client.

No Credentials

You will want to work with an agency that is affiliated with reputable debt collection associations. A business being connected to one of these associations will often display that information on its website. If they don’t, you’re able to search for their credentials online to decide if they’re reputable.

Lack of Transparency

When you call the company and ask questions as a potential client, pay attention to how they answer. If it seems that the business isn’t being fully open about their processes, payment terms, or any other information you’re asking about, take that as a red flag. You want to choose an agency that will offer its clients a full understanding of how they handle collections.

What to Expect During the Collections Process

Once you’ve chosen the collections agency you would like to do business with, you will likely have to fill out a formal application for them to take on your business debt. Once you’ve begun the professional relationship, some agencies will request payment upfront before they begin work. However, contingency agencies don’t get paid unless the collections efforts are successful.

All agencies have their own way of handling the collections process and the communication they have with their clients. Some may have an automatic process of reaching out to you at certain intervals with updates. If they don’t, you’ll likely want to set reminders yourself to check in on the process.

When it comes to the amount of time it takes to collect the debt, you should be reasonable with your expectations. Talk to the agency before you begin working together to see what they expect from the timeline and make sure that you’re both on the same page.

Of course, the goal is to get your customer successfully paying on their debt, but it’s important to know that there isn’t a single collections agency with a 100% success rate. The older the debt is, the less likely it will be paid, though not impossible. Most successful agencies have a success rate of between 60% and 75%.

If you’re part of the success rate, there is still a clearance period after payment on the collections posted. You can expect the waiting period to be upwards of 30 days once the debt is paid.

If the agency is unsuccessful at collecting the debt, you can have another agency take the account on. However, many agencies are less likely to take on second placements because they appear much less easy to collect.

Why Choose Stevens & Ricci

Once you’ve learned how to send someone to collections and you’re looking for the right choice for your small business, you should look no further than Stevens & Ricci, Inc. We offer services in all 50 states, and we have a higher rate of collection on slow-pay and no-pay invoices than our competitors.

We are also a contingency agency, so if your client doesn’t pay, you don’t have to pay us for our services. There’s no risk to working with us to get the late payments coming in for your business. Our rates are lower than competitors, and we have faster results than many other agencies.

We offer a standard rate as well as a lower rate if your small business qualifies. Simply contact us for a free quote, and we’ll get started!

Takeaway

When deciding to send someone to collections, you want to make sure you are doing everything you can as a business to handle the late payments. Make sure to follow all laws about debt collection, so you can be sure you won’t find yourself in legal trouble down the line.

When choosing a debt collections agency, you want to choose one that is reputable and will make every effort to collect on the unpaid bills from your small business. At Stevens & Ricci, we offer you outstanding debt collection odds at absolutely no risk for our clients. Our goal is to alleviate your cash flow problems while following the debt collection laws. Contact us today, and we’ll get started on debt collections!