So, you have worked hard to get the job done, but unfortunately haven’t been paid for what you delivered to the clients even after sending reminders. In such scenarios, you can’t do anything else except turn to a debt collection agency. This is because if you are still hoping for clients to make payment sooner or later, ultimately it can negatively impact your business operations.
Let’s face it: some clients make payments in a timely manner, while others may not pay their dues even after months. That’s exactly where your business can take a hit. Although sending someone to collections is not at all an enjoyable task, sometimes taking such actions can help ensure your business stays financially healthy.
Right then, let us walk you through what information is needed to send someone to collections.
What Does it Mean to Send Someone to Collections?
Sending someone to collections typically means referring the matter of clients who owe you money to a collection agency. This process involves businesses approaching a debt collection agency in a bid to get the outstanding payments cleared as soon as possible.
Businesses dealing with unpaid invoices from clients who have failed to clear the payments, even after multiple reminders, can approach a collection agency.
Since the process is not that easy and can have serious consequences, make sure you have put all possible effort into collecting the due amount. Notably, if the pending amount is too small, then it might not be worth approaching a debt collection agency because you will end up spending more time than focusing on other important work.
What Rules Do You Need to Follow When Sending Someone to Collections?
Alright, you want to hire a collection agency no matter what. Here are some rules to follow, as failing to adhere to them may negatively affect your business reputation.
1. Double-check the Debt
Verify the debt amount customers owe to you. Double-checking the debt might feel like it is unnecessary because you already know the details. However, you are advised to check how much money the client owes to you. So, before you hire a collection agency make sure you have checked the correct amount from your records.
2. Issue a Notice
Reaching out to your client multiple times didn’t pay off. So, serve them a written notice highlighting the amount they owe you. Also, mention you’re handing over the matter to a reputable collection agency. Most people do not want to deal with a collection agency, so taking this step might help you get your money without any further action.
3. Comply with Laws
Make sure you comply with state laws if you are sending a bill to collections. You must know the regulatory laws of your state. Research online or seek advice from legal professionals to know the time for debt collection within your jurisdiction. This is because by not complying with laws and regulations, you may have legal issues.
4. Adhere to the Ethical Practices
No matter how big or small the debt is, you must treat debtors fairly until the completion of the collection process. There is a Fair Debt Collection Practices Act (FDCPA) to monitor how you and collectors behave with clients. So, avoid harassing them and follow ethical practices.
5. Respect the Debtor’s Rights
Hire a collection agency that follows all guidelines, including not contacting debtors unnecessarily or using any foul language. Collectors must respect their privacy by not disclosing invoicing details to other parties. Assigning the collection task to an authorized agency is crucial, as it increases the chances of clients completing the payment.
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How to Avoid Sending Someone to Collections?
In case you don’t want to take the matter ahead and get yourself paid without hiring a collection agency, then here are some steps to follow.
1. Accept online payments
Sometimes clients would delay the payments because they might not have enough cash. So, if you are not accepting online payments, then consider adding this option to your payment methods. It offers convenience to clients to send money without asking them to come out of their home comfort.
2. Provide a clear invoice copy
Paper-based invoices can only lead to late payments possibly due to frequent revisions that make your invoice difficult to understand. If clients find it difficult to learn about the pending amount, then they might not contact you for a second time, delaying payment of the due amount.
3. Send payment reminders
Consider sending politely written reminders to clients and encourage them to complete the payments. This method works if clients have forgotten to transfer money genuinely. Reminders can effectively capture their attention and inform them of pending dues that need to be cleared. If the first reminder doesn’t succeed, the second one may work in your favor, avoiding the need to send them to collections.
4. Negotiate with clients
If nothing else works, you can lastly opt for negotiations that might save you time and hassles. It shows how much you care about maintaining relationships with clients and leads to increased brand recognition as well. Offering a negotiation plan to clients may eliminate the need to contact a collection agency.
Pros & Cons of Sending a Customer to Collections
If, after multiple attempts to reach out, you still haven’t received the payment, you can consider contacting a collection agency. However, be sure to understand the pros and cons of referring the case to collections.
Pros:
- Contacting a reputable collection agency means increasing the chances of getting the payment from clients.
- Following a long debt recovery battle, your effort won’t go in vain as you will receive money from delinquent clients.
- Helps you collect payments on time from other clients when they know that you sent someone to collections.
- A collection process led by a collection agency can maintain professionalism in dealings without any emotional factors.
Cons:
- Forwarding the matter to collections can increase the chances of denting your hard-earned business reputation.
- Customers will not prefer your service following an ordeal over payment issues and drop negative reviews.
- The collection agency would charge a hefty amount that might affect your business’s financial health.
- If a collection agency can’t recover the debt, you may need to go to small claims court, further delaying your payment.
How Much Does it Cost to Send Someone to Collections?
Collectors may charge 30-50% of the debt amount if they successfully collect the payment, while some agencies offer a flat rate for their services. Since the collection agency handles the entire process on your behalf, they require a fee if they achieve positive results.
However, if an agency’s fee exceeds the amount you’re trying to recover, it’s not worth hiring them, and you should consider looking for another option. After all, you can not suffer losses, which will temporarily halt your business operations.
Tips to Hire the Best Collection Agency
Here are some tips to consider before you hire a collection agency to handle delinquent clients and recover the debt.
1. Identify the agency’s specialties
When looking for collectors, make sure they specialize in collecting money from clients. You must hire a collection agency after checking their qualifications and certifications. You can consider a reputable collection agency that helps you get stuck money in less time.
2. Know their collection methods
Upon meeting collectors, ask them to explain the tactics used to collect the outstanding amount. You need to check whether their collection methods align with your requirements and legal standards. Apart from this, you can discuss how soon they will update you regarding the collection process.
3. Review Contracts Closely
Take a closer look at how a collection agency binds a contract to understand terms and conditions before you agree to hand over the collection process to them. Also, identify the options available if you want to back out before the collection process is completed. You must carefully go through all the details when signing the contract.
4. Look for Insurance Cover
Handing over the case to a collection agency comes with a lot of challenges. Therefore, you must check if they have insurance coverage for errors. This way, if something goes wrong, you won’t be held liable for the actions taken by a collection agency. If they have insurance, you’re protected from unexpected liabilities.
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Conclusion
So, that was all about how to send someone to collections and how much it costs to send someone to collections. We hope you now understand that sending someone to collections is only a last resort. You should exhaust all efforts to encourage clients to complete their payments. Otherwise, you risk not only wasting more time dealing with a collection agency but also slowing down your business operations.
Therefore, it is necessary to make invoices that look professional and understandable for clients. For that, you can use invoicing software like Moon Invoice, which helps you generate professional invoices in less than a minute. These professional-looking invoices can help you get paid faster, reducing the need for repeated follow-ups with clients. Try our 7-day free trial.
FAQs
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
