How To Know When To Send to Collections
Collections can be a tough process to manage, and finding out the right time to send to collections can be even harder. You don’t want to send slightly overdue invoices to a collections agency, but there’s also a point where AR is so overdue that it becomes near impossible to collect.
Has your AR struggled finding the right balance? If so, read this guide! We’ll outline the right time to send accounts to collections, how much it costs to send someone to collections, and how to choose the right collections agency.
What’s the Right Time To Send an Account to Collections?
There aren’t hard-and-fast rules about the best time to send an account to collections. Despite that, we’ve identified general patterns over our decades of experience. Let’s review when it’s too early, too late, and just right to send to collections.
Too Early
You’re sending an account to collections too early if you’re submitting them before 30 days of delinquency. Sending accounts to collections too soon impacts your reputation and is inefficient. Many accounts that haven’t been collected within 30 days can’t be attributed to malicious negligence. There are many problems that come up like billing issues, timing difficulties, or simply absent-mindedness.
We recommend a balance of 30 to 60 days when it comes to sending to collections. This figure depends greatly on your industry, client base, and what kind of customers you extend lines of credit to. Industries that have a higher risk of uncollectible accounts include:
- Advertising , Marketing and
- Public Relations
- Construction and Engineering
- Oil and Gas
- Technology
If your business happens to be in one of these industries, we would recommend leaning toward the lower end of 30 days. As a business owner, you have to temper generosity with financial success. We highly recommend drawing that line at 30 to 60 days before you send to collections.
The Right Time
We recommend sending to collections between 60 to 90 days.This is the best time to put accounts through the collections process because the debt is still fresh, but not so old where tracking down the payment would be difficult.
Make sure to incorporate your collection practices into any documents and agreements you sign with customers. This protects you from clients who threaten legal action and ensures that you stay on the right side of the law. Not only are unethical collection practices illegal, they’re also inefficient.
Too Late
Collections services are less likely to collect as debts age. Coming up with a definitive time table on this one is tough, but the most common points where collections services become less effective are at.
- 3 months
- 6 months
- 1 year
After one year, it gets very unlikely that you’ll successfully collect these accounts, although the right collection agency can still help. Don’t let your bad debt expenses stack up by sending to collections too late—never wait longer than six months to send out accounts to a collections partner.
Concerned About Risky Accounts and Debt? Read our guide to warning signs of debt problems for businesses!
How Much Does It Cost To Send Someone to Collections?
Now that you know the right time to send an account to collections, you may be wondering how much it costs to send someone to collections. Collection rates vary widely, but the average fee is between 20–40%. This range is wide because many factors impact how much time and energy an agent has to commit. These factors include:
- The Age of the Account – Older debts are much more complicated to collect. The collections agents have to put in a lot more work to track down and collect on these debts, leading them to charge higher fees.
- Industry – Industry has a huge impact on your collections team. Some industries have special factors that make collecting outstanding debts hard, leading to higher fees.
- Account Volume – Most collection agencies will charge less if you bring them many accounts at once. This is due to economies of scale. As a collections agent takes on a larger volume of accounts, it gets easier for them to work with and understand their client.
- Average Balance – Accounts with lower outstanding balances have higher fees associated with them. This is done to keep the agency motivated on smaller accounts.
How To Choose the Right Collections Agency
Now that you understand the best time to send to collections and how much it costs, you may be wondering how to choose the right collections agency. The right collections agency will have these following characteristics.
A Full Suite of Additional, Supportive Services
A good collections partner will have a full range of tools to help get the job done. Common services you should look for include accounts receivable help and legal support. A collections agency providing these services shows that they’re well versed in their industry and focused on improving your business.
High-Quality Customer Service
You should have constant access to your debt collector. Have you partnered with a debt collection agency that bounced you around call centers before? The right collection partner will offer 24/7 connectivity with your case’s agent, so you can have the confidence that you’ll get constant updates.
A Track Record of Success
Success is what matters most at the end of the day. An agency could have a full range of tools and excellent customer service but it doesn’t matter if they can’t collect. Ask the next agency you’re considering about their success rate. A good collections partner will have a success rate of 80% or higher. A great partner will be shooting over 90%.
Rapid Collections: A Premier, Global Collections Agency
Rapid Collections has a 95% success rate with all of our collection cases and all of the factors above. Our global team is ready to collect your AR and do it right. Unlike other companies, we never compromise our partners reputation with unethical collection practices. Contact us today to see what makes Rapid Collections different.
