Difficult receivables happen even in an enterprise that selects its business partners in a very restrictive way. We are not able to predict everything – sometimes we do not predict the ill will or financial problems our customers may have.
Applying the principles preventing the occurrence of overdue receivables does not guarantee that we will eliminate all such situations. When there appears a problematic debtor, an entrepreneur will sooner or later face the dilemma whether to recover its debts on its own or employ a specialised company. We do not need to convince nowadays that debt collection activities must be undertaken unquestionably. The statistics show that the most effective are the steps undertaken within 2-3 months since thee maturity date. Later, the effectiveness drops considerably with every month. By delaying with the initiation of debt collection procedure we should be aware that apart from the money frozen in the unpaid debt, which cannot be used in the turnover and which do not generate any profits for our company, charges of debt collection increase with time. It is more and more difficult to verify the address of business activity conducted by the debtor, its revenues and assets. Additionally, other creditors appear and the queue to satisfy debts from the debtor’s assets gets longer.
The matter of calculation.
Companies apply two solutions – debt collection performed on their own or entrusted to specialised debt managing companies. We should make the decision which option to choose following a relevant cost-effectiveness analysis for the said two solutions. We should analyse the following: a scale of write-offs towards unpaid receivables, costs of employees dealing with debt collection and their business trips, know-how held which allows to achieve satisfactory level of effectiveness. Debt collection is an absorbing activity, that is why it is not advisable to entrust employees from other departments, accountants or sales representatives with this function. A sales representative trying to recover debts at the customer he or she has previously won, obviously deteriorates relationships with the customer. Fixed costs involving remuneration of employees with specialist knowledge necessary for debt collection and their activity (business trips, correspondence) are incurred regardless of whether we actually have any debts to recover in a given period and whether the activities performed by these employees are effective. If we deal with debt recovery on our own, we may make an attempt to calculate what part of these costs is statistically allocated per 1 PLN recovered in a given period.
Then, compare the calculated figures to the average value of the commission charged by an outsourced debt collecting company. Such commission is due only on the basis of the so-called success fee. Consequently, we are assured that if the service proves ineffective, we will not be forced to add the debt collection costs to an unpaid receivable. Reputable debt collection companies also credit the court-related fees, if it is necessary to initiate court proceedings and they pay, unconditionally, the costs of legal representation. In case of high-value debts, these may be fees of about several dozen or so thousand PLN, which we can retain for our turnover. The companies administer all stages of the proceedings, taking responsibility for all the documents, legal representation at the court and property status establishment for the purposes of bailiff enforcement. because of their specialisation, debt collection companies achieve considerably better results in recovered debt rates.
Separate debt collection departments are usually established in big companies, in particular those with a great number of customers in their portfolios. In such case, they think it profitable to invest in specialised staff and software for debt collection management. Nevertheless, even such companies occasionally employ external debt collection companies, e.g. by selling debt portfolios or ordering debt collection in particularly difficult cases.
One outsourced company per one debt
If we decide to use outsourcing, we may try to order debt collecting services in some companies. Then, sum up their actions and narrow the group or service providers. When dealing with our receivables, a debt collection company gains knowledge about the specificity of the trade, the way we document our receivables and the most common charges raised by debtors, which makes the process more and more efficient in time, not mentioning the technical aspects of such cooperation. It is definitely not good to order debt collection of one receivable at various stages in several companies. For example, a debt collection company has been conducting negotiations and then a legal adviser files a petition to the court and the case is finally handed down to a random bailiff. The whole procedure is unnecessarily prolonged and findings made by various entities may be used by the debtor to delay repayment. In the worst cases, this may lead to unrecoverability.
Debt management by one entity only makes it possible to conduct negotiations, and – at the same time – order for payment procedure in case the negotiations prove unsuccessful, and – additionally, property status is being established all the time to be used when it comes to bailiff enforcement. If we decide to conduct debt collection procedure amicably, on our own, and then we want to use services of a relevant office, file the case to a court bailiff and only then employ an external company, we must be prepared for high commissions and even refusal. Chances to recover our debt have decreased in the course of time and the debt collection company has lost the opportunity to use many tools.
Moreover, receivables of lower quality, i.e. the majority of receivables at the stage of bailiff enforcement procedure, do not allow to make use of a wide range of debt management offered by companies operating in this sector.
Published on: 9 November 2016