Should I send small balances to a collection agency?

The short answer is yes…

You might think this is backward thinking but if you actually let late and nonpaying customers slide and don’t try to get them to pay you up to date, you can almost certainly say goodbye to that customer. You’ll definitely never serve that customer again because they never paid you, and because you didn’t try to work out some type of arrangement, you’ll most likely just write it off.

Collection agencies can actually save you a customer by allowing both parties to work out an amicable payment arrangement. If you just say, “forget it, I’ll just write it off, you have lost that customer forever. Why lose a long-term customer over a small bill?

Did you do your due diligence in trying to get them to pay that small balance? If your customer has not paid you and you are getting to the 90 day mark, you might want to ask yourself; “What do I have to lose?” You have not gotten paid and you may not be serving that customer which means you’re not getting future revenue.

One other very important factor to consider is how you are managing your internal resources. Having your staff mail letters and follow up on those calls month after month after 60-90 days may actually be costing you much more money than if you outsourced your receivables. Yes, it makes sense in the short term but after a certain point, this begins to cost you more money than the actual balance.

One of the best ways to work out small balances is to work with a collection agency that has a number of choices. One of those should be a low cost collections system. It’s pretty much what the name implies. It costs a small amount regardless of the amount owed. In our case, we work your account for a period of time and if you still have not seen a payment on that account, it goes into our Tier II system which is a more traditional method of collecting. Does it cost more? Yes, but at that point we would both agree that the account in question needs a little more diplomacy to settle.

One more point that many people don’t think of. Find an agency that reports accounts to a credit bureau. In our case, after a series of attempts, in our low cost debt collection system, we move “hard to collect” accounts into our Tier II system. After a period of time, those accounts get reported to a credit bureau. This might motivate the consumer to make arrangements for payment to avoid having that issue pop up on their credit report.

For an average of $15 per account, the question you asked yourself, “What do I have to lose?’ We say, not much. In fact, you have everything to gain including preserving a customer.