Debt collection agencies are companies that specialise in recovering outstanding debts on behalf of businesses and organisations. We’re typically hired when a business has been unable to collect payment on its own, either due to the size of the debt, the age of the debt, or the difficulty in collecting payment.

Some debt collectors specialise in different types of industries, while others may specialise in working with businesses of a certain size or with businesses who are well-established.

In this piece, we’re going to discuss the different businesses that use debt collection agencies, as well as the pros and cons that can occur when working with a debt collection agency.

Businesses that use debt collectors

There are several types of businesses that may use debt collection agencies to recover outstanding debts. Small businesses, in particular, may find it challenging to devote the necessary time and resources to the task of collecting outstanding debts, and may therefore choose to hire a debt collection agency to handle this process on their behalf. Small businesses may also use debt collection agencies to ensure that they are able to recover debts in a timely and efficient manner, as they may not have the same level of resources and expertise as larger companies.

Large corporations may also use debt collection agencies, particularly if they have a large volume of outstanding debts that would be difficult to manage in-house. This can be especially useful for companies that have a wide variety of products or services, as it allows them to focus on their core business operations rather than spending time and resources on debt collection. Additionally, large corporations may use debt collection agencies to ensure that they are able to recover debts in a consistent and efficient manner, as they may not have the same level of resources and expertise as smaller companies.

For the businesses that sit between small and big – or the medium sized businesses – a debt collection agency can be of great use. Often a medium sized business has experienced some great growth but before they can invest in more staff to help carry the load, they need to build up some more money and understand the needs of business now that it has grown. A debt collection agency can step in and relieve the burden of collecting debts while the rest of the business can focus on the day-to-day operations of the business.

Healthcare providers, such as hospitals and clinics, also commonly use debt collection agencies to recover unpaid medical bills. This can be a particularly challenging task for healthcare providers, as many patients may be unable to pay their medical bills due to financial constraints or insurance issues. By hiring a debt collection agency, healthcare providers can ensure that they are able to recover unpaid debts in a timely and efficient manner, while also minimising the impact on their own resources and operations.

Educational institutions, such as schools and universities, may also use debt collection agencies to collect outstanding tuition and other fees. This can be particularly important for educational institutions, as they rely on tuition and other fees to fund their operations and programs. They can avoid spending their time on chasing up outstanding payments and instead focusing their efforts elsewhere.

Finally, government agencies may also use debt collection agencies to recover outstanding debts owed to the government, such as unpaid taxes. This can be a particularly important task for government agencies, as unpaid debts can have a significant impact on their budgets and operations.

When should a business hire a debt collection agency?

There are several factors that may influence a business’s decision to use a debt collection agency.

One of the primary factors is the size of the outstanding debt. If the debt is relatively small, it may not be worth the cost of hiring a debt collection agency to recover it. However, if the debt is substantial, it may be more cost-effective to hire an agency to handle the collection process.

The age of the debt is also a factor that may influence a business’s decision to use a debt collection agency. If the debt is relatively new, a business may feel that it is more likely to be able to collect the payment on its own and may therefore choose not to hire an agency. On the other hand, if the debt is older and has gone unpaid for an extended period of time, a business may decide that it is more likely to be successful in recovering the payment if it hires a debt collection agency.

The cost of in-house collection efforts may also influence a business’s decision to use a debt collection agency. If the business is spending a significant amount of time and resources on collection efforts, it may decide that it is more cost-effective to hire an agency to handle the process. This can be especially useful for businesses that do not have a dedicated collection team or that do not have the necessary resources and expertise to effectively collect outstanding debts. While you do pay for the services of a debt collector, often their fees are a small percentage of the total debt recovered – and for some agencies, if no debt is recovered, there are no fees.

What are the benefits of a business using a debt collection agency?

There are several benefits of using a debt collection agency for businesses. One of the primary benefits is that it increases the likelihood of recovering outstanding debts. Debt collection agencies have specialized knowledge and resources that can be used to successfully collect payment, and they often have a higher rate of success than businesses attempting to collect debts on their own. This can be especially important for businesses that are struggling to recover large or difficult-to-collect debts, as it allows them to recoup their losses and improve their financial health.

Using a debt collection agency can also provide relief to in-house collection efforts, allowing businesses to focus on other tasks and responsibilities. This can be especially useful for businesses that do not have a dedicated collection team or that do not have the necessary resources and expertise to effectively collect outstanding debts. Agencies often have both professional and legal expertise that can be useful in the collection process, particularly if a debt has become the subject of a legal dispute.

Are there any downsides to using a debt collection agency?

While there are many positives that come from using a debt collection agency, there are a few risks and potential drawbacks to using a debt collection agency for businesses.

One of the primary risks is the negative impact on customer relationships. There is also a risk of damage to the company’s reputation if a debt collection agency uses aggressive or unethical tactics, as this can reflect poorly on the business as a whole. This can be especially problematic for businesses that rely on their reputation to attract customers and build trust, as it can lead to a decline in sales and revenue.

While this is certainly a risk, these types of practices are not common in debt collection – at least not when you work with a highly experienced and reputable collection agency. Debt collectors do have to abode by laws and regulations when conducting their work.

Get a debt collection agency to help your business today

Debt collection agencies are used by a wide range of businesses, for a wide range of reasons. A debt collection agency might be able to help you too. If you have a small to medium sized business in Australia – in any industry – and you’re struggling to collect payments from clients and customers, give us a call here at JMA Credit Control. We help businesses with their debt collection needs, as well as credit management practices. We work with businesses all over Australia and with offices in Melbourne, Brisbane and Sydney, it couldn’t be easier to take control of your accounts then it is with JMA Credit Control.