Collection companies work by asking debtors to pay their bills. For larger debts, companies typically send letters and make phone calls to the delinquent account. Smaller debts may not justify the cost of phone calls, limiting the collection companies to simply sending collection letters.

As a last resort, most collection companies will shift your bad debt recovery efforts from a collection effort, where they simply try to convince the debtor to pay, to a legal one, where a court can settle a disputed debt.

To some people, collection companies have a reputation for using bullying tactics and intimidation to recover debts. However, this reputation is outdated and undeserved. Collection companies must comply with the federal Fair Debt Collection Practices Act (FDCPA), which requires that debt collectors treat debtors fairly and prohibits certain methods of debt collection, including threats and harassment.

In addition, most agencies find that by working with debtors and providing help with payment plans or other settlement options, they are able to recover a larger percentage of money for their clients.

Some collection companies also offer services such as billing services, accounting, and other administrative functions, to compliment their debt collection services. This can be an easy way to ease the burden on your accounting department.

When is it time to turn to a collection company?

You can send past due accounts to your collection company as soon as you decide it is unlikely they are going to pay you. This can be as soon as 30 days after payment is due or up to a year or more. Once you transfer an account to your agency, the firm will handle all the communication and settlement details for that account.

Here are some indicators of when you should turn an account over to a collection firm:

• Your customer makes repeated, groundless complaints to try to get out of payment.
• The customer flatly denies owing you any payment, despite your records.
• The customer doesn’t respond to your final notices and attempts to create payment plans.
• A customer changes his or her address or phone number without leaving forwarding information.