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If you’ve ever been in sales or customer support, you’re probably familiar with this situation: a once-good client suddenly stops talking to you or returning calls. It’s not because you’ve done anything wrong but because they have; they’ve stopped paying their bills. When your Accounts Payable department tells you it’s time to send the client to “collections,” you start to panic. After all, in your mind, a collection agent is a bad guy. A collection agent is the guy that badgers you, calling at inappropriate times, threatening lawsuits and ruined reputations. You’re sure that sending this client to collections will not only ruin your relationship with the client, but it may also ruin your reputation. After all, the guy will surely start to publicly complain about how after years of loyalty, when he missed a few payments, you turned on him and “sent him to collections.” Fortunately, that image of a collection agent is more an outdated product of Hollywood than reality. Professional commercial collections may, in fact, be the best way you have to save a client and your professional reputation.
The truth is, by the time your client stops paying their bills and stops returning calls, they’re no longer really a client. The longer the account is allowed to stay delinquent, the lower the likelihood is that they’ll pay it. Some sources say that only 74% of receivables that are 3 months past due are collected. By the time an invoice is 7 months past due, there is less than a 50% chance of getting paid. The longer a former client goes without paying you, the less chance there is that they will ever return to being a customer. Once they can’t buy from your organization, the customer will start working to develop new sources and relationships. Positive experiences with new vendors can lead to permanently lost sales for you, and once they have new relationships, the pressure to pay old debt also goes down.
Collections can be a time-consuming process, and that’s time that could be better spent growing your business, finding new clients, and improving your product or service. Too often, people who are untrained in collections become emotional and actually damage their company’s reputation. Inexperienced debt collectors may also agree to less-than-favorable repayment terms or expose themselves to legal action when trying to collect on debt. The rules governing commercial collections are different than those governing personal debt collection, and someone not trained in collections will often make mistakes that could put your company at risk. However, a trained collection agency is familiar with both the legal and emotional ins and outs of collecting on unpaid bills and can do so without jeopardizing future relationships.
Hiring a collection agent can stop the games of phone-tag and avoidance, and assuming the problem was a temporary cash-flow problem, can actually put the former client back on the path to once again being a client. It may seem unlikely that you would want to restart a relationship with a client that didn’t pay you, but with a proper credit application and proper protections in place, there’s no reason not to do so. After all, when someone has been given a second chance they are usually grateful for that chance. Of course, it’s also possible that the collections problem was not temporary. In that case, a collection agent can help you get ahead of the problem before a former client declares bankruptcy. Once a client declares bankruptcy, your chances of being paid are drastically reduced.
Customer relationships are built on trust and shared positive experiences. Hiring a professional debt collector to take care of one of the less pleasant aspects of your relationship can greatly increase the chance that your relationships will stay positive.