There are several hundreds of debt collecting companies on the market. Many companies get several calls per day with such offers. How to choose a proper service provider?
It is true that there are many companies on the market, though for some of them debt collection is additional activity. A choice of a relevant partner in this field depends on the characteristics of the receivables generated by a given enterprise. When considering a cooperation with a debt collection company, we should first properly determine the type of our receivables: firstly – is our sale a mass sale or if we treat our receivables individually; secondly – are our customers natural persons or entrepreneurs?
If we deal with mass sales and our customers are natural persons, we should consider companies with extended operating structure, acting according to fixed patterns, adjusted to the specific nature of such receivables, who have mastered the procedures of personal data protection. Business to business companies dealing with mass receivables also operate according to pre-determined procedures. These usually involve court and bailiff enforcement procedures. Prices received in mass portfolio sale transactions are relatively low, but the degree of receivable ageing (and the resulting low quality) is big. Such services are usually ordered by banks, mobile network operators and other companies generating this type of receivables on a mass basis.
In case of a single debt towards a natural person, an experienced legal office will be more suitable. Individual receivables which are not paid on time by entrepreneurs require individual treatment, tailored to the specific situation of an unreliable customer. Business debtors show high legal consciousness and business to business receivables, additionally, often reach high values. For debtors, losing such amounts from turnover is very painful, that is why they frequently use all available means to delay their repayments. In case of such receivables, it is worth considering debt collector’s experience, its operating capabilities and mobility because of the necessity to conduct direct negotiations with debtors. Operating standards are equally important. In business to business relations no company may afford undertaking operations contrary to business ethics.
Not all debt collection companies buy debts. How to choose the company that will buy our debts and settles in on time?
There are considerably less companies with the access to capital enabling trade in receivables. This group comprises the leaders on the market. If we want to sell our receivable, narrow our choice to one of them. We may find debt trading companies with high capital and those listed on the stock-exchange, with financial liquidity, experience and operating standards that enable them to conduct transactions safely. When signing a sale contract concerning our receivable, pay attention to the deadlines on which the price will be paid. Sale contracts in which payment deadlines are fixed after debt collection are still present on the market. In fact, these are not sale contracts at all.
May companies treat the sale of receivables as the means to improve their liquidity?
Management of receivable may considerably improve financial liquidity of a company, provided that the service provider may offer an access to capital. Purchase of payable and non-payable receivables, factoring, production financing and advance payments towards future repayments from debtors – all these constitutes the tools to be flexibly used by the customers. more and more entrepreneurs begin to treat their receivables as assets they can or even should manage.
Should we choose one or several partners?
We may try to use services offered by several companies. However, it is advisable to sum up their operations later and narrow the group of 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. However, is 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.
Maybe is it then better to deal with debt collection processes internally?
Some companies may afford such solution. It is all the matter of the calculation of profitability. We should analyse the scale of write-offs towards unpaid receivables, costs of employees dealing with debt collection and their business trips (I advise against combining these activities with other duties, since debt collection is an absorbing task), know-how held and whether we can afford possible negative effect of debt collection procedures on our future personal relationships with these customers. Some big companies establish their own debt collection departments, only occasionally using debt sale options.
Published on: 9 November 2016