When it comes to collecting on outstanding debts and accounts, most small businesses – from a medical practice to an engineering shop to a retailer – simply do not have the human resources or the regulatory expertise to undertake this critically important task, which needs to strike a balance between maintaining cordial client relationships, while getting the outstanding debts into your bank account and onto your bottom line.

ITCBA provides a number of important considerations of why you should engage the services of a third-party debt collector for your SME:

• Unsuccessful In-House Collections: If your in-house efforts to collect the debt have been unsuccessful, chances are the people tasked with the job simply don’t have the skills or stomach for what is never a pleasant exercise. A third-party collector with specialised skills, experience and resources will be more effective.
• Resource Constraints: Small businesses often have limited resources, and chasing overdue payments can divert a lot of time and effort from core business activities, especially if your debtors are giving you the run-around. Outsourcing debt collection to professionals will free up your team to focus on core business operations.
• Specialised Expertise and legal complexities: Debt collection requires knowledge of legal and ethical boundaries. If you lack expertise in this area, a professional debt collector can ensure that your collection efforts comply with applicable laws and regulations, while also maintaining professional relationships with your customers.
• Consistent Late Payments: If you’re dealing with consistent late payments from the same customers, a third-party collector might be better equipped to enforce payment terms and establish consequences for non-compliance.
• Maintaining Customer Relationships: If you’re concerned that pursuing debt collection could harm your relationship with a customer, outsourcing the process to a neutral third party can help maintain your business relationship.
• Large Outstanding Debts: For larger and longer outstanding debts, the involvement of a professional debt collector signals the seriousness of the situation to the debtor and is likely to encourage prompt payment.
• Consistent Cash Flow Issues: If late payments are causing consistent cash flow problems for your business, a third-party collector can help you recover funds more efficiently and faster, ensuring a healthier financial position for your business.
• Debtor’s Financial Situation: If the debtor is experiencing financial difficulties, a professional debt collector will have the expertise to negotiate a payment plan that works for both parties, facilitating debt recovery without causing undue financial strain, as well as monitoring that the debtor sticks to the agreed payment plan.

You’ve decided to go the collections route, now what?

In finding the right third party collections partner for your business, these are some of the key considerations to look at:

• Find a collections partner, not a debt collector – Your industry, client base, financial provisioning and sector regulations differ, so it’s vital to have a collections partner that understands these factors to deliver a successful collections strategy aligned to your circumstances, and those of your customers.
• Compliance – Before hiring a third-party debt collector, it’s crucial to research and choose a reputable agency. Look for one with experience in your industry and a track record of ethical and compliant debt collection practices. Always be aware of the legal requirements governing debt collection for your sector. 
• Size and scaling capability – Can your preferred collections partner efficiently manage the portfolio given, and maintain quality standards and customer retention at the same time? 
• Data and Analytics Capability – does your preferred collections partner use supplied data effectively and augment this with their expertise and are they able to tap into additional resources to engage with a debtor, at the right time and channel?
• Technology – omni-channel communication tools that incorporate traditional as well as digital channels are essential to effectively communicate, report and pivot between requirements of your business and its customers. A modern and efficient debt collection agency should have advanced systems for tracking and managing debts, making the process more effective and transparent.
• Security Measures: Given the sensitive nature of debt collection, it’s crucial that the agency has robust security measures in place to protect the confidentiality of both your business and the debtors.
• Fee structure – It’s tempting to compare collections agencies on initial price, but what’s more important is their recovery rate, especially when it comes to complex debt collection. A better recovery rate and agent quality will mean a better ROI for your business.  Clearly understand the fee structure and payment terms. Some agencies charge a flat fee, while others take a percentage of the collected amount. Ensure there are no hidden fees and that the terms are fair and competitive.
• Success Rate: While no agency can guarantee 100% success, a high success rate indicates competence and effectiveness in their collection efforts.
• It’s about customer service – By better understanding each debtor’s circumstances and behaviour, your collections agency should be able to segment and risk rate debtors more precisely and activate the right conversations – there is a significant difference between collecting an outstanding medical debt where the debtor/patient may not even be aware of a shortfall that their medical scheme has not paid, versus a retail account where the debtor is knowingly avoiding payment and contact.  
• Reporting – Choose an agency that provides transparent and detailed reporting. Regular updates on the status of collections, payments received, and any issues encountered are essential for keeping your business informed.

What information will my debt collections partner need?

When engaging with a third-party debt collector, there is specific information that a debt collector will require in order to commence and manage the debt collection process: 

• Debtor’s Contact Information: Full name of the debtor, address, Phone number, ID number. In the case of medical collections, they will need details of the account Guarantor/Main Member, even if the debt is incurred for a dependant.
• Details of the Debt: Amount owed (handover amount to be collected), nature of the debt, date of the debt, account and/or invoice number, date of last service and date of last payment.
• Verification of Debt:  The debt collector is often required to provide verification of the debt, including the original creditor’s name and information.
• Payment Information:  If the debtor agrees to make a payment, the debt collector may request payment information such as a bank account number or credit card details.
• Negotiation: Debt collectors need to be able to negotiate a settlement or a repayment plan with the debtor. This involves reaching an agreement on a reduced amount or structured payments. Once an agreement is reached, the debtor may make payments according to the agreed-upon terms.  If the debtor fails to respond or make payments, the creditor or debt collector may choose to pursue legal action to get a judgment against the defaulting debtor. 

The right collections partner will work wonders for your cash flow, provisioning and protect your customer relationships, especially at the current time when millions of debtors are facing incredibly challenging circumstances. At the end of it all, the best outcome is one where the debt is successfully recovered and the debtor remains a loyal customer as they were treated fairly, with dignity and respect for their unique circumstances. 

For more information visit www.itcba.co.za