For most business situations, it makes a lot of sense to send overdue files to a good collection agency for accounts receivable recovery. In fact, a number of business models that will probably surprise you (from law firms to funeral homes) do it all the time.
But there are times when sending an account to collections may not do much good. Here are four good examples where a collection agency probably can’t help—and how to avoid such situations in the first place.
1. The Debt is Statute Barred
The biggest mistake businesses make in managing overdue accounts is procrastination. As collection industry professionals, we know that with every passing month, the recoverability of a debt is statistically diminished. We’ve even created a helpful debt recovery calculator to show in real-time how yours is affected. As if that was not enough, once any debt reaches a certain point—which is a mere two years in most provinces and territories—it becomes statute barred. That means the provincial or territorial statute of limitations prevents you (or your collection agency) from taking court action to collect it. The unpaid debt can still be reported to credit bureaus, but because collecting it becomes close to impossible, collection agencies are unlikely to take it on.
2. You Messed Up Big-Time
If there was a small issue in delivering on your end of a deal (the product or work was less than perfect), hopefully you took reasonable steps to resolve it. That could mean replacing, repairing or offering an appropriate discount. After all, consider your customer’s point of view: why pay full price for a deliverable that fell short of the agreement. In some cases (printed material comes to mind), the product cannot be returned and an error could render it unusable. If the buyer accepted responsibility in writing or accepted the goods without a timely dispute (normally within 90 days of the invoice date), you may have a chance. Sometimes the customer is just looking for a way out of meeting a payment obligation. If in doubt, ask a debt collection expert—but do it soon (see #1 above).
3. There’s Precious Little Proof
Proper contracts and business documentation is so obvious you’d think it hardly bore a mention. Yet business owners and accounts receivable managers often find themselves without a leg to stand on, chasing overdue accounts with woefully insufficient supporting documents—or even nothing at all. To get started, your collection agency will need copies of invoices, as well as all related contracts, delivery waybills and other documentation in order to collect effectively on your behalf. Our one-of-a-kind online debt submission tool makes it super easy to upload these things anytime, day or night. Just make sure you have everything documented in the first place. (We’re collection experts, not magicians!)
4. The Money is All Gone
Another reason to be proactive, especially with B2B debt, is that about 7,000 businesses go bankrupt in Canada every year. The failure rate among startups and small businesses is especially high—especially in volatile sectors and affected regions. That brings us back to the importance of being proactive, and establishing a high payment priority with all customers. When money is short, the squeaky wheels get paid first. And when the business fails, it is seldom anyone but the bank and the CRA collects. It’s wise to enforce a policy-based time limit for sending any account to your collection agency: no longer than 90 days past due at the most. And trust your spidey senses: if you see red flags or your gut says there’s a problem, it’s NEVER too soon once a payment commitment is breached.
Be proactive, be attuned and be diligent, and you won’t have many run-ins with bad business debt. Even so, stuff happens. Be sure to download my free guide to choosing the right Canadian collection agency for your business with the link below.