Collections: A Cost / Benefit Analysis

Collections: A Cost / Benefit Analysis

Collections: A Cost / Benefit Analysis

Debt is a serious problem. A new debt survey reveals that one in five people believe that the will never be able to get out of debt. Matt Schulz, a senior analyst at CreditCards.com stated, “Whenever you see people resigned to the fact that they can’t get out of something, it makes them much less likely to take any action at all to make it better.” This sort of thinking affects your business as a healthcare provider, lawyer, or service provider. This isn’t just a problem that’s seen in the consumer economy. Businesses struggle, too. Yet, both have a common thread. When consumers and small businesses can’t pay their bills, your company suffers, too.

Should You Avoid Using a Collections Agency?

You’re owed money, and you want to collect on it. Should you avoid using a collections agency? Is it true that they’re too expensive? Before you determine whether you should avoid using a collections agency, you must perform a cost / benefit analysis involving all of your options. It may seem time consuming, but a cost / benefit analysis can help you weigh your options and make an informed business decision. Below, you’ll find a general analysis of the options. Keep in mind that you need to do this for your business. Your business has certain needs and our generalized analysis may not account for every scenario. Need help? Contact us. We’d be happy to help you conduct your analysis.

Cost and Benefit: DIY Collections

Generally, the first thing people consider is to do their own collections. This can happen in a couple of different ways. The owner of the business can do their own collections. The owner can bring on an employee to perform collections. Let’s look at both.

When we initially think about the cost involved of DIY collections, we think that it’s a big savings in money. After all, you’re not paying a collections agency, an attorney, or an employee to do the work. So, while it could be said that saving money in that capacity is a benefit, we also need to take some two specific key factors into consideration. The time that you spend doing collections on your own is time that you lose from growing your business. You only get 24 hours in a day. As the owner of your business, your primary job is to make money. Which do you think is more profitable: acquiring new clients and providing services or collecting on delinquent accounts? The second major key factor is whether you have the legal knowledge to do your own collections. First, you must understand the differences between collecting on consumer debts and business debts. Next, you must be incredibly intimate with federal laws, such as the Fair Debt Collections Practices Act, and any local statutes. That takes time and it can also take money if you plan to take courses. If you don’t know the law, you won’t know what you can and can’t do in an effort to collect. If you break the law, you can be sued. To summarize, you may not spend as much if you do your own collections, but you’ll suffer a time loss and possibly put yourself at risk for a lawsuit.

You could hire someone. The major benefit here is that it frees up your time. You can keep running your business. You help the economy by providing a job opportunity. Those are excellent benefits. However, there is some substantial costs involved to bring on an employee. There’s salary, benefits, training, and overhead. Can your company absorb those costs or will it put you into a financial bind? If you choose to hire someone who is experienced in collections, you’ll pay more than someone with little experience. Someone with little experience will need more training. You’ll also have to ensure that the person presents an image of your business that pleases you.

Cost Benefit: Hiring an Attorney

Another option for debt collection is to hire an attorney that specializes in collection. There are a couple of great benefits to hiring an attorney to collect on past due debts. The most obvious benefit is that you’re working with an expert. This is a person who went to school to learn the law. You certainly wouldn’t have to worry nearly as much about federal or state law being violated. The major drawback is the cost. Attorneys are generally more expensive. Also, if you decide to allow the attorney to file a small claims suit on your behalf, you’ll also have court fees and additional lawyer fees coming out of the recovery amount.

Cost Benefit: Using a Collections Agency

Benefits for using a collections agency include freeing up your time and you get experts who can collect on your debts. They know the law. Of course, it does come with a cost. It’s generally less expensive than using an attorney to collect on debts. There are options to collecting that may affect the cost. First, there is the option of first party collections. This means that the collections agency calls debtors as if they are part of your company. Next, there is the option of third party collections. For instance, if you partnered with Attorney's A.R.M., we would make calls as Attorney's A.R.M. collecting on your behalf. Then, there’s also the option to sell the debt to a recovery agency. If you sell the debt, you might get far less than if you were able to collect on it. Attorney's A.R.M. provides reasonable rates for both first and third party collections. Third party collections can even qualify for special rates. Contact us to learn more.

Your Business, Your Decision

Your business is important to you. Only you can make the best decision for collecting on your debts. Attorney's A.R.M. provides a free review that can help you make this important decision. It’s important that you weigh each option and take every piece of your business into consideration before you make your final decision.