It isn’t always smooth-sailing in the contemporary business realm. The global economy is a volatile, unforgiving environment and sometimes firms are swallowed up by insolvency and bankruptcy.
Depending on the industry, it can be almost impossible to operate and thrive as a small business, particularly when competing with the bigger, more established firms.
However, there are many ways that you can protect your business during less than profitable economic periods and one of the best ways of achieving this is through a debt collection firm. Never heard of this type of business before? Read on to find out more.
What is a debt collection firm?
Also known as a factoring company, collection agency or a debt collector, a debt collection firm pursues payments and outstanding debts owed by individuals and businesses. If your firm is owed outstanding debts (e.g. from credit sales) or owes outstanding money, a debt collection agency is the place to call. Indeed, Brook Blanch, the Business Development Manager of Boston Commercial contends that debt collection can be incredibly important for businesses that largely thrive off revenue from credit sales. This applies to more and more businesses, as cash transactions are becoming less and less common.
Basically, a debt collector assumes responsibility of recovering your debt. They’ll chase up your debts for you, leaving you time to focus on other areas of your business. Naturally, you won’t get all of what you are owed because your debt collector takes a fee for their services and involvement. However, you benefit from getting most of your money quickly and when you need it.
Why is debt collection so important?
Debt collection is so important for many reasons; however, one reason stands above the rest. Organising your accounts receivables in an effective manner will increase the likelihood of you meeting all your financial obligations, in both the short and long-term. The longer you leave your debt outstanding, the greater risk you pose to your business and its long-term solvency.
The benefits for your business
There are many great benefits of enlisting the services of a debt collection agency. However, it is important that you get in contact sooner rather than later if you want the best results.
Liquidity refers to a business’ ability to meet its short-term financial obligations (generally within a 12-month period). This refers to things like payments to suppliers, payments for wages/salaries for workers and payments for utilities expenses. Knowing that you have adequate funds in your cash account will ensure that you are meeting your short-term engagements.
Better corporate culture
This advantage is very much an extension of the previous point. Put simply, if you can pay your employees on time, they’ll feel rewarded and more content in their positions (from a financial perspective). Better financial planning can lead to more lucrative and rewarding bonus schemes for your workers, which has also been linked to a more positive corporate culture and higher levels of productivity.
Better supplier relationships
Suppliers relationships can be negatively affected by poor and unclear payment policies. If you want to maintain a strong and lucrative relationship with your supplier network, punctual payment is a big factor in achieving this. This all stems from knowing you have enough money in your cash account to pay your suppliers and maintain the positivity. You don’t want to be continually overdrawing your account just to make ends meet with your suppliers. It will all come crashing down eventually and when it does, your financial woes will be more severe.
Better legal protection
Another great advantage of hiring a debt collector is the legal protection. Now, you can do your own debt collecting if you wish, just know that the debt collection industry can be a minefield when it comes to laws and regulations. You could be perfectly within your rights to be chasing up a long-standing debt from a customer. However, you make one wrong move and suddenly you could be the one getting sued.
Fortunately, third-party agents are well-versed in all applicable laws and regulations that they need to follow. Instead of risking your own skin, outsource your debt collection needs to a third party. They’ll be able to get the job legally and more efficiently.
At the end of the day, debt collection agencies provide a valuable service to various businesses. Even if your business is performing well financially, there may still be problems in terms of liquidity and meeting your short-term payments. Leave this task up to the professionals and don’t delay getting in contact with a debt collector today!