Sending a client or partner to collections for past due or outstanding invoices can be tough, but getting the money you’re owed is necessary to ensure your own business’s survival and posterity.
This comprehensive guide from the expert Monetaria team outlines the collections process: when you can send someone to collections, how to send someone to collections, the rules for sending someone to collections, and how much does it cost to send someone to collections.
When Can You Send Someone to Collections?
If you’ve got clients with outstanding bills, don’t send them to collections immediately. Be proactive and over communicative, and offer to accommodate them and work out a payment plan with the customer before taking more compelling action. See if they’re willing to pay over a set amount of time, or make a lump sum payment at a discounted rate. A move like this fosters good will between parties and increases your chance of actually getting your money back at a much quicker pace than sending the matter to collections.
You can send someone to collections when you feel the collections route is inevitable—perhaps because of a stop in communications or stated refusal to pay what they owe— and you’ve given the client formal notice of how much they owe and have given them at least 30 days to pay the debt. Keep a record of this communication for future reference to prove that you followed the proper procedures if there is any dispute.
Related: What is Commercial Debt Recovery and Collection?
Rules for Sending Someone to Collections:
There are a couple of rules for sending someone to collections to consider before initiating the process:
You should give the client formal notice and a payment window. Some collections experts recommend waiting 90 days after the invoice is due to send them to a collection agency, but most experts say that waiting 90 days decreases your chances of successful collections.
Additionally, keep records of all correspondence between you and the client, to ensure a collections agency—and potentially, a court—can track your business together and compel payment.
How to Send Someone to Collections:
Before you send someone to collections, you’ll need to have all the necessary documentation. This includes any invoices, receipts, contracts, or other documentation proving the debt’s existence, as well as copies of emails, texts or call records proving your attempts to collect the payment privately. You’ll also need the contact information for the person or business you’re trying to collect from.
Related: How to Choose a Debt Collections Agency
Once you have everything in order, you can begin shopping for a collections agency that meets your needs and then turn the case over to them. They’ll take over everything and employ a number of methods to efficiently collect what you’re owed using their industry experience and expertise, including sending demand letters, offering payments and, if necessary, going to the courts to access bank accounts, garnish payments, or other ways to collect money on your behalf.
How Much Does It Cost to Send Someone to Collections?
The actual cost to send someone to collections depends on the debt collection agency you work with. That being said, the standard debt collection fee is between 20% to 50% of the total amount the collections agency gets back for you. Because debt collectors only get paid a percentage of what they collect for yout, most debt collection agencies will not take on a case that is below a certain dollar amount, such as $1,000, for example. However, you might find that some collection agencies will collect a debt as low as $500.
Related: How Much Do Collection Agencies Charge?
We’re happy you found this article informative! Go back to our blog page to find more tips, tricks and guidance on collections, to ensure your business gets paid.
If you have unpaid debts that need to be recovered, commercial debt collection may be a good option for your business. A commercial debt collection agency can help you with the process of recovering past-due accounts and provide guidance on best practices for managing accounts receivable.
Led by a team of experienced commercial debt collection attorneys, Monetaria Group has helped hundreds of businesses recover and collect their outstanding debts and payments. Schedule a FREE consultation with our expert team to see how we can help you recover your money today!