The Nuts & Bolts of a Credit Policy (Part 4 of 4) – Getting Help from Third Party Collection Agencies


In part 4 of our series, we dive into what your business needs to know about utilizing collection agencies. Find out when to use a collection agency, how to choose the right agency, what it’s like to work with a collection agency, and how working with a collection agency impacts your business.

The Collection Agency

A collection agency is a company used by lenders or creditors to recover funds that are past due, or from accounts that are in default. A collection agency is usually used when all other steps to recover a debt are exhausted.

First, to ensure future success, a company should already have an established written credit policy for managing their accounts receivable from the date of sale or service rendered until the account is collected. This provides a pathway and process to getting accounts paid once they become delinquent. 

Of course, while most customers pay on time, others will not for a variety of reasons. At this point, after following all steps to resolve the matter yourself outlined in your credit policy, it may be time to turn the account over to a professional collection agency such as CINCB. 

When to Use a Collection Agency

When accounts reach 90 to 120 days past due, you may want to consider placing them with a collection agency. Some people place accounts at 60 days; some wait over a year—it is completely up to you. If you wait over a year it is unlikely you will get paid, but possible. If you are letting something sit on your books and grow older without actively pursuing it, it is worth it to give it to a collection agency. It is not going to get collected if you keep it, and the percentage you will pay the agency will be well worth it. 

As an account ages, the chances of collecting on it decrease dramatically. It’s expensive to carry accounts that you will not be able to collect using the methods at your disposal. It sometimes becomes a better use of your company’s time and resources to concentrate on other aspects of your business. Using a collection agency can be profitable for your business and help you grow. Some collection agencies charge more for older accounts; this is because they are much harder to collect. 

A professional collection service can assist you in collecting accounts that remain delinquent. Collectors have a vast knowledge of collection techniques, technology and compliance issues. Using a professional collection service will save time and likely yield better results than you can achieve on your own.

How to Choose a Collection Agency

Choosing a professional collection service to manage delinquent accounts and other related tasks is a wise decision. The agency should represent your organization in a responsible and professional manner and provide a satisfactory rate of recovery while maintaining your public image. This decision involves more than just giving your business to the lowest bidder—it requires careful consideration. 

Consider the following qualifications and credentials when choosing a collection service. 

  • Does the agency charge fees that are clearly stated? 
  • Will the agency be sensitive to a consumer’s individual situations? 
  • Will the agency be consummately professional? 
  • Does the agency understand the importance of confidentiality? 
  • Is the agency knowledgeable about the legal implications of debt collection? 
  • Does the agency have a computerized accounting system to track collections made? 
  • Does the agency submit monthly statements to the member?
  • Does the agency belong to a local Chamber of Commerce 
  • Does the agency belong to the local Financial Services Association?
  • Does the agency belong to an international network of credit reporting and/or collection agencies? 

The relationship you have with your agency should be a partnership. 

Working with a Collection Agency

Once you decide on a collection agency, give as much information as possible. Accurate information about the account will improve collections. In all cases, the minimum information should include: 

  • The correct name, address and telephone number of the debtor 
  • Name of the debtor’s spouse, if applicable
  • Whether mail has been returned
  • Debtor’s and/or spouse’s occupation or last known occupation and phone number
  • Names of relatives, friends, neighbors and references
  • Summary of any disputes
  • Date of last transaction, order or payment
  • Cellular phone, fax and e-mail address
  • Nicknames or aliases, maiden name 

If you have had all new customers fill out a proper credit application, all of the above information should be available. The summary of disputes would be in the computer notes for the customer’s account. This makes it very easy—all the information you need, all in one place, on one piece of paper. This is one of the reasons why a credit application is so important. 

Cooperate with your collection agency. Rely on their experience, diligence and judgment for the best and quickest results and promptly refer any contact from the debtor to the collection agency. 

Do not place any accounts with more than one agency. Make sure that if you change collection agencies, the accounts are only being worked on by one agency. 

Collection agencies’ fees are based on results, not on time spent on the account. Don’t expect payments to be made immediately. 

How Collection Agencies Get Paid

Collection agencies charge a commission or percentage based on the many factors of the accounts they are trying to collect, a flat monthly fee, some charge per letter or call or a combination of these.

How Using a Collection Agency Affects Businesses

If you decide to turn your delinquent accounts over to a collection agency, be prepared for the customer to call you. This doesn’t always happen, but they might call the business owner to try to work something out once the account has been placed with an agency. Once you place the account with an agency, all contacts must be referred back to the agency. 

If the debtor calls you, explain to them the account is with a collection agency and they have to call them. You can always brush off the discomfort of the call by saying, “My bookkeeper, accountant, (anyone but you) is handling my accounts and the policy is anything over 90 days is placed for collections. Once placed with an agency, all communications from you must be directly with the agency.” 

Once you hang up, e-mail or call your collection agency and let them know the debtor contacted you. If you received mail with payments from the debtor, forward them to the agency. 

If the debtor comes to your place of business to make a payment, the debtor should be directed to make the payment with the agency. Have the agency’s business cards on hand to give to the debtor so that the debtor knows the agency’s contact information and location. Again, notify the agency of the attempt by the debtor to pay. 

It is important to note that if you choose to accept payment from the debtor (a very tempting situation indeed! After all, they are right in front of you trying to pay you!), the total amount due that you will likely communicate to the debtor will not reflect the agency fees. So, for example, if you only accept the full amount of the original debt, the debtor will believe he has paid his debt in full when in reality there are agency fees still due. This could result in debtor dissatisfaction with you as a creditor. For a debtor to be led to believe that his account is paid in full and then to be advised later that the debt collection fees are still outstanding is a very difficult conversation. It could possibly reflect poorly upon the professionalism of your debt collection procedures or upon the partnership you have developed with your collection agency. Sending the debtor to your collection agency will avoid this situation.

Collection Agency Payments and Updates

Most collection agencies send payments once a month. Once you place accounts, give the agency some time to process and work on the account. Agencies also have to give the debtor 30 days to request verification of the debt and/or dispute the debt. 

Remember, any money collected for you is money you thought you would not be able to collect without effort and time on your part


A collection agency helps your business recover a delinquent account when all other options have been exhausted. Keep in mind that time is of the essence when placing an account for collection. The older your accounts, the lower your chances of recovery. Placing these delinquent accounts with a professional, reputable agency is a good decision, but choose wisely. A collection agency can be a vital companion to your business saving you time and effort and yielding more revenue recovery.

Contact CINCB today with your questions. As a reminder, you can find sample documents, a credit policy handbook, and more on our website. Just click here to download. To get started right away and access all the tools you need, click here to become a member.

CINCB has been established since 2002 to provide debt collection and credit reporting services. CINCB serves over 260 creditors locally and internationally with a local team of highly experienced agents ready to serve you.  Services are delivered fully online at www.CINCB.ky.  Contact us today to find out more.

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