Studies have shown that the longer a receivable is past due, the lower the likelihood of collecting. For example, on average only 74% of receivables that are 3 months past due are collected. The implication: the longer you wait before taking more assertive action to collect past due receivables, the lower the likelihood you will get paid.

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A commercial collection agency uses a variety of methods to pursue debt collections, including gathering information under the auspices of an audit, hiring a private detective, or keeping track of collection deadlines in order to maximize collection efforts.

When common collection methods such as phone calls, sending repeat notices and threatening the debtor with a lawsuit fail, an agency may contact the debtor and claim to be auditing receivables for your company. While talking to the debtor, the collector may mention that the audit has uncovered some overdue invoice amount that is owed to your company. They then can present the debtor with payment options. Oftentimes, to avoid the possibility of an audit, the debtor will choose to pay the debt off quickly.

For debtors who are more difficult to collect from, your agency may hire a private detective or may even have private detectives on staff. Private detectives know lots of ways to locate debtors who no longer answer their phone, have changed phone numbers, or have no known forwarding address. Once located, the debtor may be motivated to pay the debt in order to escape further inquiries. Private detectives may also determine if the debtor has any assets such as a house or any other businesses.

The cost of hiring a debt collection agency varies based on the volume of business you provide and the amount of the debts to be collected. Some collection agencies charge a flat fee upfront to take on a fixed number of accounts. But, most take a percentage of the debts they collect, ranging anywhere from 20% to 50%.

The agency should be fully computerized and have software which gives you the information you need to measure that agency’s effectiveness.

It should have a separate trust account into which all your funds are deposited and remain until they are remitted. The agency’s fee should not be taken from the trust account until you are paid.

Within 24 hours of receipt of a claim, an acknowledgment should be sent to you, and both written and verbal demands should be made on the debtor. Based on the results of the first debtor contact, follow-up should be made on a day-to-day basis, without harassment, to assure the greatest net return to the client.

A written report should get sent to you within five working days of receipt of the claim. If urgent, a verbal report should be made with a written follow-up for the file. Within 30 days of the first report, a status and recommendation report should be sent to you.All recommendations for a payment schedule, settlement, or legal action should include substantial amount of information about the background for the recommendation.

When it comes to debt collection, being local is not critical. The effectiveness of a commercial collection agency is determined far more by the background and training of the collectors, the collection approach, persistence, timely follow-up, and ferreting out myth from reality. Most work is done over the phone or by fax; most research is done via Internet and phone – so location is not a factor.