Internal vs Outsourced Collections – Which is Better?

Every business faces late payments at some point. It’s an unfortunate but common part of trading, no matter what size your business is. When those unpaid invoices start to pile up, the question becomes: should you handle collections in-house, or bring in the professionals? Both approaches have their advantages and drawbacks, and the right choice often depends on your business size, resources, and customer relationships.

Today, we’re going to go through the pros and cons of each approach, so that you can make a decision that’s right for your business.

Internal Collections  – Pros

Maintains your customer relationships: Handling collections in-house means you have direct communication with your clients at all times. So you can be sure you’re preserving a positive relationship with your clients. This can be especially useful if the late payment is just an oversight or internal issue.

Complete control over the process: Your business retains full control over the collections process, from the strategy all the way through to daily implementation. Communications methods, payment terms, you can choose what works for your business.

Immediate action: As soon as you notice an issue, you can act. This allows for quick follow-up on overdue invoices, and means you may be able to catch them before they turn into bad debts. Sometimes, quick action can be the difference between payment and non-payment.

Internal Collections  – Cons

Resource intensive: Managing your collections in house can be time consuming. Not just in the actual time it takes to do it, but in dedicated staff, training and resources. This all costs your business time and money.

Lack of experience & tools: Internal teams often don’t have the specialised knowledge, understanding or technology to manage more complex collections. So while they may be able to manage simple accounts, those that require more attention or involve complex issues pose a challenge.

Potential bias: If the staff who are handling the collections have a personal relationship with the customer, they may end up being too lenient with them. Giving them the benefit of the doubt or not taking action when they should. This leads to lower recovery rates, which is bad for business.

So what about using a collections company? What’s the difference?

Using a Collections Company  – Pros

Expertise and specialisation: Professional debt collection agencies have specialist knowledge of debt collection law alongside extensive experience, so they know exactly the best way to handle each account individually. They will also have access to a range of tools that can make the collections process simpler and easier for everyone involved.

Increased recovery rates: The focused expertise and resources collections agencies have, often lead to higher success rates, especially for difficult accounts that internal teams would struggle to resolve themselves.

Leaves you free to focus: Outsourcing such a time and labour intensive part of your workload frees up you and your team, allowing them to concentrate on their main roles, and what they do best!

Using a Collections Company  – Cons

Cost: Collection agencies don’t provide their services for free. They often charge a fee, or a percentage of the amount collected, which can be significant, especially for older debts. Each agency charges differently though, so make sure you check their fee structure before you instruct them.

Less control: In outsourcing any function (not just debt collection), your business is giving away a small piece of control. In this case, over the collection process and communication style with your customers. This is why it’s so important to do your due diligence and make sure you’re working with the right agency for you.

Potential customer impact: While professional agencies aim to be respectful and, well, professional, there are rogue agencies out there. Using a third party to collect debts does change the customer relationship dynamic, and depending on the agency, not always for the better. Again, this is where vetting your agency before working with them is important.

Ultimately, the decision on whether to outsource your debt collection is yours, and yours alone. Some companies find that handling it in house works great, especially if they’ve put a lot of effort into hiring great people for their finance department. For others, the work of managing overdue invoices and chasing debts quickly becomes overwhelming, or gradually becomes too difficult to handle. At Debtcol, we won’t push our collections services on you if you don’t need them. Instead, our experts will work with you on the areas you need support. Whether that’s cashflow advice, credit services or even investigations. And if you need support with debt collections, we’re always on hand. For more information, just get in touch with the team today.