Small Debt Collection Agency

Small Debt Collection Agency and Small Debt Collections

Small Debt Collections – What, Why and How?

I’ve been preaching the importance of small debt collections forever.  In this article, I’m going to make my case. I’ll cover four topics:

  1. What is small debt?
  2. Why collecting small balances is important
  3. How to systematize your small debt collections
  4. What to do when you need a small debt collection agency
While I’ve been writing about Collecting Small Balances for years, I haven’t however, made much headway. Everyone wants to “focus on the big balances.”  On the face of it, that makes sense, but allow me to make my case.

What is Small Debt Collections?

The answer is, as is so often the case, it depends. What one company considers small balance collections could be the life-blood of another. But even bigger businesses can suffer small balance losses.
I worked for one company whose average balance was about $6000. But when we came on board, they had over 300 customers with past-due invoices under $100.
If you don’t feel like doing that math, that’s over $30,000. $30 k is a chunk of change for any small business, but collecting from that many customers takes planning, so it often lands on the back burner.

Why is it Important?

There are two big reasons small debt collections is important.  I touched on one of them a moment ago:
  • they add up, and contribute to bottom line profitability, or lack thereof and
  • it’s a poor precedent and sets up unhealthy (for your bottom line) expectations 

Ignoring small balances is an easy and common way for big companies to take unearned discounts from small companies. They know you probably don’t have the resources to follow up.

Let all of your customers know you’re on top of your game and that you know and care when they owe you money, big or small.

I’m not suggesting you spend the same time and effort on your small balance collections as you do on your large balances.  I am suggesting you don’t ignore them and that you have a system in place for dealing with them. 

A Simple System

Like most everything else, if you want to collect your small balances without spending an arm and a leg, you need a system and wherever possible automation.

Step 1: Start with a monthly statement.  This can usually be automated within your accounting system.  By the 10th of each month, email a statement to everyone with an open balance large or small. 

About a third of your customers will respond with a check, an email or a call.  Be certain to respond promptly to all emails and inbound calls.  These will be your customers with disputes and issues.  To reduce bad debt losses you need this information sooner rather than later.  

Step 2: Send an email inquiry to accounts payable to everyone who didn’t respond to your statement.  Do this around the 25th of the month.  Keep it simple and to save yourself some time attach a copy of the invoice.  The subject line should read “Your Company Name – Open Invoice Inquiry”.

I have a signature template set up in Outlook with my inquiry.  I open an email, add the name of the person I’m emailing, insert the signature and attach the invoice.  It takes about a minute.  Here is some sample language, feel free to use it.

Hi (name),
Please provide payment status on the attached unpaid invoice(s). I can be reached at (phone number with extension) or reply to this email.
(signature block including phone # and extension

Make sure to include your phone number and extension. More phone directories don’t work than do and it’s frustrating for customers to try to call and not be able to find you.  

Step 3: Send a second request email to everyone who hasn’t responded to you so far. You can use the same template but your subject line should read “2nd Request – Your company name – Open Invoice Inquiry”. You should get a good response to this one. As always, respond to all inbound calls and emails promptly.  

Step 4:  Now your down to your problems and it’s time to get on the phone. Call everyone that hasn’t responded to your 1st 3 attempts to collect. I’ve written at length elsewhere in this blog about how to handle a collection call so I won’t belabor that here.  

What to Do When You Need a Small Debt Collection Agency

Well, obviously call us at 800-201-CA$H (2274).  But all kidding aside, if you need a small debt collection agency, finding one can be a problem. The traditional small business collection agency model calls for a no collection, no fee or contingency collection protocol. So, many collection agencies will reject small debts because they aren’t profitable enough.

That’s why we provide flat-fee collection, but we’re not the only ones out there. There are agencies out there other than ours that collect small balances and with a little bit of research you can find them. I found one that collects balances as low as $15 and they do it on contingency, you can check them out here. I’m not endorsing them because I don’t know the company but our service isn’t cost effective for balances that small.  

That should cover everything, until next time and thanks for reading.


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