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Dealing with unpaid invoices is a common challenge for businesses of all sizes. Clients or customers failing to pay on time can create cash flow problems and lead to unnecessary frustration. At some point, after exhausting your internal efforts to collect, you might wonder, "How do you send someone to collections?"
This blog will walk you through the process, from understanding what sending an invoice to collections means to finding the right agency to handle the debt recovery process. By the end, you'll have a clear roadmap to ensure your unpaid invoices are handled professionally, helping you recover funds while maintaining your company's reputation.
Sending someone to collections is a formal process in which you enlist the help of a third-party collection agency to recover an unpaid invoice. When a client has failed to pay for goods or services rendered, and all other collection efforts have been exhausted, you may decide that the next step is to work with a collection agency.
When you send someone to collections, you essentially hand over the responsibility of collecting the debt to a professional agency. They will then take action to recover the unpaid funds on your behalf, usually by contacting the debtor through phone calls and letters and sometimes reporting the debt to credit bureaus.
A collection agency will use various methods to recover unpaid invoices and encourage the debtor to pay. These include regular follow-ups, setting up payment plans, and even pursuing legal action in extreme cases. Agencies usually charge a percentage of the collected debt as their fee.
The collection agency is a middleman between you and the debtor, handling the entire collection process. They have the expertise and tools necessary to deal with delinquent accounts, and their involvement often encourages debtors to settle their unpaid invoices faster, knowing that their credit rating could be affected.
However, before sending someone to collections, taking a few preliminary steps is essential to ensure you've made every effort to collect the debt internally.
Jumping straight into sending an invoice to collections without taking steps to recover the debt on your own may only sometimes be the best approach. Here's what you should do first:
Typically, businesses wait 60 to 90 days after the invoice due date before escalating the issue to a collection agency. This time frame allows for any unforeseen circumstances that may have delayed the payment.
Ensure that the debtor has received their invoice. Sometimes, invoices get lost in email spam folders or physical mail. Resending the invoice can be a reminder and may result in payment without further intervention.
A friendly email reminder or letter can encourage prompt payment. Automated payment reminder systems can help in this process, reducing the risk of manual follow-ups falling through the cracks.
Contacting the debtor directly through a phone call often proves effective. Speaking with them lets you understand their situation and negotiate a payment plan.
If the amount owed is significant, consulting with a lawyer before sending the invoice to collections may be a good idea. A lawyer can help guide you through the legal steps to recover the debt and offer advice on whether pursuing legal action is viable.
A formal demand letter is the last step before collections. It outlines the due amount, any late fees incurred, and a final payment deadline. If this step isn't resolved, it's time to explore working with a collection agency.
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After taking these steps, if the invoice remains unpaid, you may start preparing to send the account to collections. But before doing that, let's review the rules and guidelines you must follow.
Adhering to specific legal and ethical guidelines is essential when sending someone to collections to avoid complications and ensure the process is handled correctly.
Before handing the debt over to a collection agency, ensure that the invoice is accurate and the debt is legitimate. Double-check all details, such as the amount owed, the debtor's contact information, and any payment history.
In writing, you must legally inform the debtor that you intend to send their account to collections. This notification should include the total amount owed and a deadline for payment to avoid further escalation.
The Fair Debt Collection Practices Act (FDCPA) outlines the rules for how debt collectors can engage with debtors. It's essential to ensure that the collection agency you work with adheres to these laws to avoid legal repercussions for your business.
Even when sending someone to collections, it's critical to respect their rights and avoid aggressive or harassing behavior. Collection agencies must maintain professionalism and follow ethical practices throughout the process.
Once you've met these requirements, you can decide whether to hire a collection agency. But how do you know when the right time is?
Hiring a collection agency should not be the first step in debt recovery. Still, it can become necessary when all internal collection attempts have failed.
If you've sent multiple reminders, made phone calls, and even sent a formal demand letter without success, it's time to consider working with a professional collection agency.
Sometimes, debtors may avoid communication, making it difficult to recover the unpaid invoice. A collection agency has more resources and leverage to encourage the debtor to pay.
Managing debt collection in-house can be time-consuming and resource-intensive. Suppose your team needs more expertise or capacity to handle collections effectively. In that case, hiring an agency can free up valuable time and energy for your team to focus on core business tasks.
If you decide to proceed, the next step is finding the right collection agency to work with.
Choosing the right collection agency is critical for ensuring the best possible outcome in recovering unpaid debts. Here's how to go about finding a reputable agency:
Start by researching local collection agencies and gathering recommendations from fellow business owners or professional networks. A personal recommendation can help you find a reliable agency.
Look for online reviews to see how other businesses rate the agency's services. You should also check if the agency is accredited by the Better Business Bureau (BBB), which signals trustworthiness and ethical practices.
Ensure the collection agency is licensed correctly and complies with state and federal regulations, such as the FDCPA. This will protect your business from any potential legal issues.
Different agencies offer various services, so it's essential to understand what's included. Some may offer additional services like credit reporting or legal support. Make sure to understand their fee structure clearly before signing a contract.
When interviewing collection agencies, ask vital questions such as:
Now that you've chosen a collection agency, it's essential to understand how much this will cost.
Collection agencies typically charge a percentage of the recovered amount as their fee. Here's what you can expect in terms of cost:
The fees charged by collection agencies usually range between 20% and 50% of the collected amount, depending on the complexity of the debt and the likelihood of recovery.
Several factors can affect the fee percentage, including the age of the debt, the debtor's location, and the size of the debt. Higher fees are often charged for older or more difficult-to-collect debts.
Some collection agencies may charge additional fees for setting up or maintaining your account over time. Be sure to clarify any potential extra costs upfront.
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Once you've agreed on fees, it's time to understand what to expect during the collection process.
Once you've handed over the debt to the collection agency, they will take several steps to recover the unpaid invoice.
First, You must provide the collection agency with all relevant documentation, such as copies of unpaid invoices and any communication with the debtor. After submitting this information, the agency will authorize the account for collection.
The agency will contact the debtor through phone calls, letters, and emails. They may also report the debt to credit bureaus if necessary, which can negatively impact the debtor's credit score.
Most agencies will provide regular updates on the status of your case, including any payments made or progress in recovering the debt. Ensure you have a clear communication plan with the agency.
While collection agencies are effective, it's essential to have realistic expectations. Some debts may take longer to collect, and in rare cases, they may be deemed uncollectible.
Need help choosing the right collection agency? Contact us today for expert advice and to ensure your unpaid invoices are recovered quickly and efficiently.
In conclusion, let's wrap up the key takeaways from sending unpaid invoices to collections.
Managing unpaid invoices can be challenging, but knowing how to send someone to collections is essential in maintaining a healthy cash flow for your business. You can recover unpaid debts with minimal stress by following the steps outlined in this blog—from attempting internal collections to choosing the right agency.
Remember to choose a reputable collection agency, understand the costs involved, and follow all legal guidelines to ensure the process is handled professionally. By being proactive, you can reduce the risk of future unpaid invoices and maintain strong relationships with your clients.
Don't let unpaid invoices affect your business. Contact us today to learn how we can help you recover overdue payments and steady your cash flow.
