Collecting debts can be a frustrating endeavour, especially when dealing with stubborn and dishonest customers. This often places a significant burden on business owners and staff, particularly in micro, small, and medium enterprises with limited resources. When invoices remain unpaid, companies may face challenges that can disrupt operations, hinder growth, and create financial difficulties.

Addressing the problem then becomes a necessity, and businesses have two strategies to choose from: in-house and outsourced debt collectors.

Understanding In-House Debt Collection

In-house debt collection involves a business managing its overdue accounts within its organisation. This typically includes a dedicated accounts receivable or credit control team responsible for contacting customers, sending reminders, and negotiating payment terms.

Benefits of In-House Debt Collection

The decision to handle debt collection internally is a strategic move with a significant impact on a company’s bottom line and customer relationships.

● Greater Control Over the Process

Maintaining an in-house debt collection team provides a company with direct oversight and management of every aspect of the recovery process. This control even extends to setting the tone and language used in communications with debtors, which can ensure adherence to the company’s brand values and tailor collection strategies to the specific circumstances of each customer.

For most businesses, this level of control can be particularly important because they prioritise maintaining a consistent brand image and customer experience. It also allows them to implement their preferred debt collection philosophies—whether a more lenient approach focused on payment plans or a more assertive approach aimed at rapid recovery.

With greater control, businesses can also swiftly adapt their debt collection strategies in response to changes in regulations, market conditions, or internal policies.

● Potential for Stronger Customer Relationship Preservation

In-house debt collection teams are often better positioned to preserve customer relationships than third-party agencies. They can be trained to approach debt collection with empathy and find mutually agreeable solutions. Internal teams often have a deeper comprehension of the customer’s history with the company, which allows them to tailor their approach and offer flexible payment options that might not be available through an external agency.

Challenges in In-House Debt Collection

Any decision to handle debt collection in-house requires a careful and objective assessment of a company’s specific circumstances, especially in light of the common challenges faced by in-house collectors.

● Costs in Resources and Infrastructure

Creating and maintaining an effective in-house debt collection team demands a significant upfront and ongoing investment in various resources.

First, they will need to recruit and hire qualified collection staff, which can be challenging in a competitive job market. Once hired, these employees require extensive training on debt collection laws and regulations, effective communication techniques, and the use of debt collection software and systems.

The company also needs to invest in appropriate technology, including debt collection software to manage accounts, track communications, generate reports, and comply with regulatory requirements. Furthermore, they have to consider the costs of office space, equipment, and ongoing IT support. Without the necessary resources and infrastructure, an in-house debt collection team may struggle to operate efficiently and effectively.

● Potential Limited Expertise and Experience

While internal staff can be trained, they may still lack the depth of expertise and practical experience of seasoned debt collection professionals at specialised agencies.

Collection agencies typically employ staff with extensive knowledge of debt collection laws, negotiation tactics, and skip-tracing techniques. They also have experience working with a wide range of debt types and industries, allowing them to apply best practices and strategies that might not be obvious to an in-house team. Without this expertise, in-house collectors might be less effective at recovering debts, particularly those that are complex or challenging.

● Strained Scalability

Scaling an in-house debt collection operation can present significant logistical and financial challenges, particularly during periods of rapid business growth or economic downturn. If the volume of overdue accounts suddenly increases, the company may need to hire and train new collection staff quickly, acquire additional technology, and expand office space. This expansion can strain resources and disrupt operations.

Conversely, if the volume of overdue accounts decreases, the company may face difficult decisions about downsizing its collection team, which can lead to employee morale issues.

● Diversion of Resources from Core Business Activities

Managing debt collection internally can divert valuable resources and attention away from core business activities essential for driving revenue and growth. Executives and managers may need to spend time overseeing the debt collection process, addressing compliance issues, and resolving customer disputes. These responsibilities can distract them from focusing on strategic initiatives, such as sales, marketing, product development, and customer service.

Understanding Outsource Debt Collection

Outsourcing debt collection involves hiring an agency to manage overdue accounts on behalf of the business. These agencies specialise in debt collection and operate with established processes, technology, and legal expertise.

Advantages of Outsource Debt Collection

Faced with the challenges of collecting from debtors, many businesses consider outsourcing this task to debt recovery agencies.

● Improved Recovery Rates

Debt collection agencies possess specialised knowledge and skills in debt recovery. They are particularly adept at locating debtors who may have moved or changed contact information using advanced skip-tracing techniques. Agencies also have experience in negotiating settlements and payment plans, maximising the chances of recovering a larger portion of the outstanding debt.

Moreover, they understand the psychology of debt and how to motivate debtors to pay. This specialised expertise often results in significantly higher recovery rates compared to internal efforts, especially when dealing with aging or complex debt. Debt collection agencies are also equipped to handle various types of debt, from consumer debt to commercial debt, tailoring their strategies accordingly.

● Focus on Core Business

Chasing overdue payments diverts valuable time and resources from essential business operations like sales, marketing, product development, and customer service. With the best debt collection agency, businesses can refocus their staff on these primary functions. Over time, this can result in improved customer satisfaction, increased productivity, and greater business growth.

● Scalability and Flexibility

Whether the business experiences a sudden surge in overdue accounts or a consistent flow of debt, outsourcing allows it to scale its collection efforts up or down as required. The business can adjust the volume of accounts it assigns to the agency based on its current needs, avoiding the costs associated with maintaining a fixed-size in-house team.

Disadvantages of Outsource Debt Collection

No method is perfect, even those with careful evaluations pre-implementation; there are often outlying risks.

● Loss of Control

Losing a certain degree of control will always be part of outsourcing any task. After all, they are entrusting a third-party debt collection company to represent their business. Part of this is having less direct control over how debtors are contacted, the communication style used, and the overall approach to debt recovery.

Instead, businesses must rely on the agency’s policies and procedures, which may not perfectly align with their business values or customer service standards. To mitigate this risk, companies can thoroughly vet potential agencies, review their collection practices, and establish clear communication protocols.

● Cost Considerations

While outsourcing can reduce operational fees, debt collection agencies typically charge a portion of the recovered debt, known as a contingency fee. These costs can vary based on the age and type of debt, as well as the agency’s experience and expertise.

Businesses should carefully evaluate the agency’s fee structure and compare it to the potential return on investment. They may also negotiate the fee arrangement to ensure it aligns with their budget and recovery goals.

Outsource Your Debt Collection With Bluechip Collections

The decision to outsource debt collection or keep it in-house is not one-size-fits-all. It always comes down to what the company needs, and some circumstances require one strategy over the other.

Bluechip Collections is an Australian debt collection and credit management agency that can help you recover any money owed to you. With our assistance, you can improve cash flow and lessen bad debt while maintaining compliance. Contact us through our website.