Regardless of how different their offering may be, companies that sell goods or services will usually have a few common denominators. Besides the typical day-to-day challenges with coordinating deliveries, finding vendors, staying in compliance and similar, debt collection is slowly becoming one of the most common concerns for profit-seeking entities. In the age where credit-based sales are amongst the most common types of buying arrangements, problems with unpaid invoices are more worrisome than ever.
Just consider the mind-boggling fact that an average household in the U.S. owes over $132,000. So, businesses that rely on timely payments from their consumers have never faced such a challenging market. Fortunately, there are ways to sidestep long delays and costly write-offs. Amongst the most successful solutions are companies that specialize in debt collection. These organizations handle outstanding payments on behalf of businesses whose customers have missed multiple deadlines. So, what would be some of the most important reasons why hiring a debt collector pays off?
Better Cash Flow
Obviously, the sole purpose of an agency that collects debt is to reduce the number of unpaid accounts. According to the Pacific Collection Group, which is a seasoned veteran of the industry, the primary benefit is the improved cash flow. When businesses sell products or services without receiving payment, their access to cash will plummet. Since they still need to cover overhead expenses, the lack of timely payments can cause a lot of problem with liquidity. Once debt collectors enter the equation, although it is not guaranteed, most companies see better operational cash flow as a byproduct of more consistent payments.
Higher Accounts Receivable Turnover and Lower Write-Offs
When someone’s accounts receivable turnover is extremely low, it means that they seldom collect outstanding accounts. In other words, higher ratio translates to better collections. So, why does this particular figure matter? Because it directly impacts the percentage of account write-offs. Companies that do not collect a lot of their receivables are more prone to eliminating existing debt. For instance, if someone’s turnover for long-term debt is under one, their historical data showcases that they are most likely never going to collect money owed on long-term accounts. One of the easiest ways to improve the receivable turnover, which should reduce the frequency of write-offs, is to hire a debt collector.
More Reliable Customers
Pacific Collection Group further states that many organizations can acquire reliable customers by simply showcasing their association with debt collectors. The reason why is the fact that delinquent buyers are much less likely to purchase from brands who use these agencies. This is because debt collectors are known for their persistence and resourcefulness. Not to mention that they can use a ton of versatile resources to retrieve the funds.
Impacting Credit Scores
One of the most potent tools that debt collectors utilize is buyers’ credit reports. By placing a collection on someone’s spending history, these agencies are able to significantly drop people’s credit scores. Doing so results in higher interest rates, more denials, and an abundance of long-term issues. After all, seeing a collection on a credit report is the equivalent of reading “untrustworthy.” Unfortunately, businesses alone cannot use credit reporting against delinquent consumers. To do so, they must turn to licensed companies that are formally recognized by all credit bureaus.
Even though the list of benefits continues, the aforementioned four are amongst the most important ones. Not to mention that the vast majority of debt collectors are quite affordable.