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The Advantages Of Retaining A Third Party Collection Agency

posted 4 years ago

It is without doubt that in-house collection offers some
advantages because it can move swiftly to recover small debts.
Since contingency cost of a third party collection agency range
from 10- 30 percent, in-house collection assures the business of
more money provided the debts are successfully recovered. It is
also easier for in-house collection to manage customer relationship
thus retaining business relationship with the debtor.

But having an effective in-house collection may be expensive and
time consuming. To maintain an in-house collection, some businesses
spend huge sums of money on staff, telephone calls, invoicing,
visits to the debtor’s place of business with little success to
show for their efforts. In fact some in-house collections run at a
loss. Conversely, the overhead of staffing and running costs would
be greatly reduced upon retaining an efficient external collection

Since the success and growth of any business depend on effective
recovery of its outstanding debts, the task of debt recovery may
distract the business from the main aim of setting it up in the
first place. Hence, retaining a third party collection agency would
give the business the latitude to focus on core business

Again, as a result of the close business relationship between
the creditor and the debtor, it may be difficult for in-house
collection to be effective. Experience has shown that the debtor
would most likely take a third party debt collection agency more
seriously than an in-house collection.

Furthermore, the harsh economy climate in most jurisdictions has
made it more difficult to recover debts. Some in-house collection
relies on orthodox methods that have consistently failed to yield
positive results. The modern and proven recovery strategy of a
third party collection agency would enable businesses to promptly
recover outstanding debts.

Besides, with the increase in international trade and
investment, it is not uncommon for the creditor and debtor to be in
different countries or even continents. It would be difficult if
not impossible for in-house collection to recover debts across
borders. This is because the risk and cost of going across borders
to recover the debt may be more than the debt itself. It is
therefore prudent to retain the services of a debt recovery agency
within the jurisdiction of the debtor to recover the debt.

Also the process of recovery of some debts may be technical.
Businesses may have to invest heavily on continuous training of
their staff to navigate this cumbersome terrain. But this dilemma
would be put to rest upon hiring a debt recovery expert skilled in
the technical process of debt recovery. In this circumstance, all
that the business is interested in is the prompt recovery of its

In most cases, third party collection agencies are paid a
contingency fee upon recovery of outstanding debts. Unlike in-house
collection, third party collection agencies only get paid when the
debts are recovered. Therefore there is higher incentive to be
efficient and record higher collection rates. It is not out of
place for third party debt collection agencies to buy outstanding
debts of businesses and bear the risk of the recovery of such debts
from the debtors.


posted 6 days ago


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