First-party or Third-party Collections: Which is Right for Your Business?

First-party or Third-party Collections: Which is Right for Your Business?


Determining how to handle accounts receivables for your business can often become confusing and stressful. Each business is unique and requires their own plans of action to minimize and resolve billing issues. In this volatile economy, dealing with slow-paying customers becomes a challenge. Often, businesses are faced with taking serious actions by turning accounts over to a collections agency to resolve the owed debt.

What Are Your Options?

Just like in every other aspect of your business, you have options available to you. What you must do is learn about your two options and make the determination of which option will be most successful for your business. The two options for your business are:

  1. In-house collections (also known as first-party collection); and
  2. Collection agency (also known as third-party collections).

It can be hard to determine which direction is best for your business to take. Delinquent accounts that take longer to close can cost you money. They create stress not only for your business, but also for the client. Regardless of which option you choose, it is important that your business maintain its good reputation and to maintain as much as client relationship as possible.

First-party Collections

First-party collections allow your business to retain 100% of the money collected. Handling collections in-house allows you to control the tone of the correspondence between your business and your client. Often, your client may be facing a temporary or emergency financial setback. Threats can often lead to the loss of a loyal client and potential future clients. Setting up solid groundwork, training employees, and creating a system to access accurate and current client information are ways that you can help control the first-party collections process.

First-party is generally more preferable not just on the money front. The reputation of your business is extremely important. When your collections process is kept in-house, you retain more control of the entire process. Third-party agencies are notorious for mistreating clients; that can lead to legal problems for your business. This is why first-party is more preferable. It’s a safety net not just for your relationship with the client, but it also provides a layer of protection for you.

Third-party Collections

Third-party collections can cost a business between 15 to 40% of the money collected. Contracts are made between the business and agency; the contract determines the rate of commission. However, there is certainly a time and a place for third-party collections. If you’ve attempted to collect using first-party collections and were unable to do so, then third-party collections can help. You will be able to continue to focus on other business related tasks while the third-party agency takes over the collections effort. Check out this post to learn more about choosing a third-party collections agency.

In many cases, third-party agencies will consider purchasing bad debt. In doing so they take on the responsibility of collecting the debt owed. You also recover some of the money from the debt owed.

Determining which collections method is best for your business can be overwhelming. Remember to take the cost to hire employees, invest in new equipment, software, and providing workspace into consideration. These things can often cost you more than what is collected, but you will retain control over your collections process. Third-party agencies provide experienced and trained staff who should know both federal and local collections laws, but you may not have as much control over the process or how your delinquent clients are treated.

Clients ARM Can Help

At Clients ARM, we offer our clients a variety of services that can save you time, money, and grow your business. We know that choosing the right plan of action is important. We offer a free process review that will assess your entire accounts receivable process and how it can be streamlined. We aim to improve your process to help minimize future delinquent accounts. Clients ARM can free up time for business owners so that they can focus on the most important aspects of their business: generating revenue.

Client’s ARM is familiar with the laws regarding collections on both the Federal and State level. We are licensed in multiple states, and our we have a collections rate of 90%. We also provide both first-party and third-party options for your collections needs. If you’re ready to find out how much working with Clients ARM can save you, contact us now. Put our 30+ years of experience to work for you!