The bill collector cometh: do you need a collection agency to gather receivables?

Generating revenues is the lifeblood of any business. But far too often small businesses are so focused on making money that they neglect to put enough effort into actually collecting it. According to the International Association of Commercial Collectors Inc. (IACC) in Minneapolis, billions of dollars in delinquent commercial credit are on the books of businesses worldwide.

Collection is a thorny issue because it can require getting tough with the very same customers that keep your business afloat. Many small businesses handle the entire process in house, either by charging their sales staff with the task of collecting on their accounts, or by using dedicated collections personnel.

However, for reasons of convenience or the need to remain "the good guy" in the eyes of treasured clients, many companies outsource some or all of their collections functions to a professional agency. Most collection agencies try to collect money by using a combination of letters and telephone calls. Some will also help their clients pursue legal solutions to collecting a receivable.

According to a recent survey by the American Collectors Association Inc., there's a 33% chance that a collection agency will recover your money. The average account turned over to an agency has a balance of $1,614 and is 191 days past due; the average agency commission is 39%.

These figures indicate that turning over an overdue account to a collection agency is an action of last resort for many companies. The IACC suggests that bad debts be turned over to an agency when:

* The in-house credit department loses effective contact with the debtor.

* The debtor has ignored requests for payment or has broken payment arrangements.

* The unpaid bill has reached the age designated by the company policy to be considered a bad debt.

H.J. Hansen, a credit consultant with Bilateral Credit Corp. of New York, says companies should be certain that pursuing a collection solution through the legal system is beneficial to the business. If not, he suggests turning over a hard-to-collect receivable to a commercial debt collection agency after it has been outstanding for 90 days. "The collectability of a year-old file is nominal," he says.

Hansen cautions business owners to seek collection agencies that are bonded so they won't disappear with your money. You can also check with the Commercial Law League of America (CLLA) in Chicago (312-781-2000). The CLLA's Commercial Collection Agency section provides detailed reports on collection agencies as well as licensing information.

Should you decide to keep your collection function in-house, many accounting software packages have bill tracking modules. Also, the IACC offers a free copy of Commercial Collection Guidelines for Credit Grantors. For more information, call 800-859-9526 or visit their Web site at www.commercialcollector.com.