The vitality of a business largely depends on consumer sales. When delinquent consumer accounts arise, businesses must decide whether to pursue in-house debt collections or delegate the process to a debt collection agency. Direct oversight of accounts and consumer relations, along with perceived savings, draws businesses toward exploring in-house collections. While this option can prove successful for some, internal operations often comes at the price of spending valuable time, energy, emotional energy, money and human resources.
In 2016, the average U.S. consumer debt was $39,216, with consumers owning on average 1.51 retail credit cards with a balance of $1,081, according to Experian’s seventh annual credit report using data from 200 U.S. metro areas. With consumer debt rising, unpaid charges are becoming increasingly inevitable for all businesses regardless of retail credit card programs. Here are a few key factors to consider when strategizing debt collections management.
First, businesses must design a business plan detailing all aspects of its proposed in-house collections process. The plan should compare the projected revenue recovery to the total cost and time required to establish and maintain in-house debt collections. Next, the results of that analysis should be weighed against the cost and projected results of employing a best-in-class debt collection agency.
Although approaches to debt collection will vary, all businesses will require specific skills, knowledge and resources to perform in-house operations successfully.
Rules and Regulations
The small business owner who calls consumers from a home office and the certified debt collector working for an agency both share the legal responsibilities of collecting on delinquent accounts. Business owners and employees who handle in-house collections must obtain a solid understanding of federal and state debt collection laws. Federal laws include the Fair Debt Collection Practices Act (FDCPA), Federal Fair Credit Reporting Act (FCRA), Servicemembers Civil Relief Act (SCRA) and Telephone Consumer Protection Act (TCPA).
Excellent customer service is not only optimal, but it is also a legal matter. High performing debt collectors learn effective and professional consumer contact strategies— what to say, tone of voice, confidentiality rules, contact frequency and acceptable call hours — through compliance certification and training. Business owners must adhere to both legal and professional curtseys.
Routinely contacting indebted consumers can take an emotional toll on business professionals, however, avoiding and or postponing contact is not an option. Whether the collections are conducted in-house or externally, contacting delinquent consumers as soon as possible in the revenue cycle will result in the most favorable return on investment.
It is essential for professionals to have the personality profile of a successful debt collector. Professionals must successfully speak with distressed and or difficult consumers, remain persistent and positive, and have outstanding conversational skills for profitable debt collection efforts.
For special circumstances and or unforeseen legal matters, a legal team may be necessary.
Tracking, logging and evaluating collections performance data requires a significant amount of time and energy. Monitoring the number of delinquent accounts, the size of debt and recovery figures is imperative. Depending on account volume, businesses may consider implementing specialized collections software.
Building an In-House Debt Collections Department
When conducting in-house debt collections, small businesses generally designate one to five employees to the task while larger businesses may possess the resources to build a dedicated collections department.
Legal requirements dictate the physical structure of a collections department. For example, the department must operate in a separate space from the rest of the office and desks must meet privacy regulations.
Building a new department will entail hiring more employees. Businesses should budget for the costs of labor and remodeling. Additional costs will include department furnishings, phone systems, lockers —due to strict policies on personal items including cellphones — collections software and advanced technologies. Businesses may also need to hire skip tracers, attorneys and or consultants.
In-house debt collections may benefit businesses equipped with the time, energy and resources to implement and maintain collections operations. For businesses considering outsourcing a portion of its accounts, replacing an existing debt collection agency or fully outsourcing collections, a best-in-class debt collection agency is required.
At Optio Solutions, our first-and-third party collections can assist businesses in successful accounts receivable management without the need for them to invest in additional resources. With our services, businesses hold full authority over accounts and collection activity with the ability to modify or stop collections on any account.
Contact us today to learn how Optio can assist your business with an individualized contingency-based or flat-fee collections program. With our contingency-based programs, clients only pay on a percentage of the recovered debt without upfront or hidden fees.