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Commercial Collection Agencies Face Special Challenges
Small Businesses Pessimistic
The Discover Small Business Watch report for September 2009 was published this week. And it did not make happy reading.
The survey of small business owners found that 46 percent of respondents expect their fourth quarter this year to be worse than the same period in 2008. Only 21 percent thought it would be better.
Meanwhile, 69 percent of those surveyed believe that the recession is not over, compared with 13 percent who think it is.
Business Collection Agency Industry Faces Tough Times
All of this is gloomy news for commercial collection agencies, which can expect more of the same: greater caseloads alongside lower liquidation rates.
One problem for just about every business collection agency is that creditors who have commercial debtors tend to be less focused on--and less ruthless in--pursuing overdue accounts than their opposite numbers in the consumer sector.
Why It's Different for Commercial Collection Agencies
In some ways, this is understandable. A credit card company, for example, has millions of customers, and doesn't care too much if it alienates the (relatively) few who are problematic. Business creditors, on the other hand, often have relatively small customer bases, and regard the loss of even one with something approaching horror.
It's Personal
Equally, with business accounts, the two sides often know each other personally. Maybe the creditor's CEO or owner has had frequent face-to-face meetings with the debtor, or has even socialized with him or her.
And, even if they haven't met, there's some natural fellowship between two entrepreneurs in related industries. How often does the creditor's decision maker think to herself: "There, but for the grace of God, go I."
The trouble is, unless she keeps control of her cash flow, she's likely to go precisely that way.
No It's Not
This week also saw American Profit Recovery, a Michigan- and Massachusetts-based business collection agency, unveil an interactive online tool that may help business creditors to move beyond thinking about account recovery management so personally.
Visitors to the site are asked a series of qualifying questions, and then advised about the optimum collection strategy for their business.
Psychologically, this may just help. The decision-maker may feel that she's been relieved of responsibility, and some of her discretion, and has been empowered to act.
Or maybe not. Only time will tell how effective the tool is. But it's a smart idea that was well worth trying out.
Business Collection Agency Motto: Serious Stuff
Making businesses think about business collections in a more, er, businesslike way would certainly benefit commercial collection agencies. But it would also help the economy as a whole.
The Commercial Collection Agency Association (CCAA), a trade body that claims to "represent the most prestigious commercial collection agencies in the United States," makes a telling point.
It says that a company that makes a four percent net profit, and that writes off a $100,000 debt, has to boost its sales by $2,500,000 to make up the damage to its bottom line. If a two percent net profit is more realistic in the current economic climate, then that $100,000 write-off is the equivalent of losing $5 million in sales revenues.
The Penalty for Collecting Late
The CCAA has also studied the effect of delaying making collections. It reports that, after only three months, the chances of collecting a delinquent account fall to below 70 percent. After 180 days, that probability tumbles to just over a half. And, after a year, it's down to 22.8 percent.
Commercial Collection Agencies Collect Early and Often
The message is clear. Individual companies--and the economy as a whole--benefit if commercial creditors call in a business collection agency early.
But how commercial collection agencies communicate that message is another matter.
Sources
CCAA (PDF)
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