Running a small business is tough. Half of small businesses don’t last more than five years, and many never turn a profit before they fail. Sometimes this is because of poor business practices, but sometimes it’s because of customers failing to pay quickly enough, or at all. If you’re a business owner struggling with accounts receivable swelling and not enough operating revenue, it may be time to look at debt collection and recovery services.
Debt collection services are, of course, not free. They’re typically a percentage of the amount of debt collected, from 25% to 50%, but if your company is desperate for funds, something is better than nothing. In addition, there are several advantages to working with a debt collection agency for tough accounts.

Avoid accusations of harassment.
Excessive calls or a threatening tone can be used against you to claim harassment in court. Hiring a debt collection service puts phone calls in the hands of professionals, and takes the responsibility out of yours. This has the added benefit of keeping you from having to be the one bothering a customer you might still hope to do future business with.

Write demand letters.
You can write demand letters yourself in the same way you can make phone calls to collect. Keeping copies gives you evidence of your efforts to collect if you ever wind up in court. However, an expertly written letter from a debt collection agency often carries more weight than a letter from a construction company, caterer or wedding photographer, no matter how well it’s written. The letter head of a debt recovery agency gets a debtor’s attention.

There are also a couple things to keep in mind when shopping for debt collection services.
Debt collectors specialize.
Some debt collectors are especially good at working with large companies, while others work mainly with small businesses or individuals. When considering a debt collection agency, make sure you ask what the bulk of their work is, and find one that’s going to be good at doing what you need them to do.

Make sure they’re bonded, licensed and insured.
Rules change based on location, but be sure you’re working with someone who follows local laws and follows the Fair Debt Collection Practices Act. No matter how good a collection agency tries to be, debtors can still take you to court. Make sure your agency carries the appropriate insurance to protect you from liability for hiring them. It’s usually called Errors and Omissions Insurance.

Ask how they handle tough cases.
This is a chance for you to hear if they use any tactics you wouldn’t be comfortable with them employing on your behalf, but it’s also a chance to see if they have ways of catching people who move or employ other tactics to avoid debt. Good collection agencies will be able to “skip trace”, or track people who leave town without a forwarding address. If an agency can’t do that, they may not be prepared to handle your debt collection.

Of course, you’ll want to compare fee schedules and contingency costs with companies, as well. Not all debt may be worth hiring the same agency for. If debt is particularly unlikely to be collected, you may be better off selling it than contracting a collector.