When Should You Call In a Collections Agency?

Sooner rather than later. The longer you wait to start the collection process on overdue accounts, the less of a chance you'll have at recovering your money.

The day after an account becomes overdue, you should place a polite phone call to the customer who owes you money. If that doesn't work, you may want to send a few past-due letters yourself, or you may want to go directly to a collection agency. Base your decision on how much money is owed to you and the history of your relationship with the customer. If it's the first time you are doing business with them, you'll want to call in a collection agency earlier than you would with a 10-year customer with a solid credit history.

Most companies call in a collection agency once a debt is 60 days to 90 days past due. If you wait much longer than 90 days to begin recovering unpaid receivables, your chance of collecting drops dramatically.

If you discover that your customer has gone out of business, find out what type of business it was — a corporation, a partnership or a proprietorship. If it was a corporation, don't bother calling for the help of a collection agency. It is doubtful that you, or any one else, will be able to squeeze the last few nickels out of that client. If the company is a partnership or a proprietorship, you may be able to get the individual owners of the company to pay you out of their own pockets.

If you try to recover a debt and can´t, consider that bad debt a tax-deductible item (Tax Code IRC 166, Reg. 1.166). You will be able to deduct the cost of the goods sold (but not paid for) as an ordinary business expense. You can't deduct any lost profits from the sale, nor can you deduct the money you didn't get paid for services rendered.