Many businesses are faced with the dilemma of customers owing a small amount and they are refusing to pay. The easiest solution is to write off the debt and never do business with the customer again. The best solution is nearly just as easy though.
Hire a Collection Agency for Small Amount Invoices
While hiring a collection agency may seem like a time consuming, it really isn’t that difficult at all. All you need is a copy of the invoice or the contract you entered with the debtor.
The collection agency will then give you a contingency rate quote on what they will collect the debt for. While some agencies attempt to charge up front for collection services, we highly recommend on utilizing a contingency rate collection agency.
A contingency rate simply means the collection agency only gets paid contingent on the debt actually being collected. Simply put, the collection agency only gets paid when they are able to successfully collect the money the debtor owed.
What is the minimum amount for a collection agency?
The minimum amount most collection agencies will attempt to collect is roughly $500. Often times though, collection agencies will work with a small business if they have a smaller amount. The collection agency will still be gaining a new client that could place more debts in the future so it is a worthwhile partnership in the long term.
How much does it cost take someone to collections?
The cost of turning over a past due customer can be 15%-30% typically. This rate will vary depending on several issues surround the debt:
- Amount– The larger the amount, the more potential revenue for the collection agency. Since we are discussing smaller amounts, you may expect to pay a higher rate due to limited upside for the agency.
- Age of Debt– The older the debt equals decreasing odds of collecting the money. If a debt is 45 days old, you can expect a very competitive rate. Don’t wait to turn over a debt to a collection agency.
- Type of Debt– Is the debtor an individual or business? It is much easier to collect business from a business compared to tracking down an individual. Is the debtor unhappy with the work provided so they aren’t willing to pay the full balance? Many factors go into collecting a debt but these are a few of the questions you may hear before receiving a rate offer from a collection agency.
Do I need a court ordered judgement to collect a small unpaid invoice?
No, you do not need a judgment from the courts to collect on a small debt. Actually, collection agencies would prefer attempting to collect on the debt before a business pursued the court route. Why? Simply put, if a debtor has been taken to court and still refuses to pay then agency views it as a more difficult debt to collect.
Pro Tip: Use a collection agency first to attempt to collect a debt, especially if it is a small amount. Hiring a small business collection agency cost you no money and very little time. Go the court route only if collections fail.
Collection Agencies Can Save You Money
Many small businesses will usually leave it to a bookkeeper or accountant to collect on a debt. Ask yourself, how much do you pay them per hour? Is this what you want them to be focused on?
Debt collectors will be more effective in collecting the debt and will allow your staff to focus on what you actually hired them for. Leave the collecting to the collectors and your employees will be thankful for this along with your bank account.
Your employees will be happier to not have to attempt collecting the debt and this will lead to a more productive and happy employee!
While we understand collecting a debt for such a small amount may seem tedious and a waste of time, it may benefit your company in the future.
By hiring a collection agency now, you will have a process in place for future accounts to be placed which will increase the odds of collecting the money due to turning over the account earlier in the debt cycle process.
We understand it is a small amount, but the next one may be large. Attack the problem today and your company will benefit from this decision in the long run.
Is your business collecting debt from individual consumers or other businesses?
Collect from businesses only
Collect from individual consumers and businesses
Roughly how much debt are you looking to collect?
$100,000 or more
Roughly how many accounts are you looking to collect from?
100 or more
On average, how long have the accounts been past due?
Two to six months
Six to 12 months
One year or more