Recent research conducted by accounting software Xero revealed that over 62% of the 500 small businesses surveyed encountered late or unpaid invoices in the past year.
This issue significantly impacts cash flow, often leading to delays in payments to suppliers. Shockingly, nearly 25% of Australian businesses admitted that they would not be able to survive for a month if all their unpaid invoices remained outstanding.
Given the critical role of the debt collection process for businesses of all sizes, it’s essential to address certain myths surrounding debt recovery. These myths often hinder business owners from taking necessary debt recovery actions. Below, we debunk five common debt collection myths that you need to be aware of.
1. Chase a debt and you’ll lose your customer
This misconception lacks validity. Entrusting the debt recovery process to a professional agency allows you to concentrate on business growth and operations while experts handle debt collection efficiently.
Partnering with a reputable debt recovery agency sends a strong message to customers about your commitment to maintaining healthy cash flow. A trustworthy agency operates ethically, transparently, and in alignment with your business principles, ensuring effective and efficient debt recovery.
2. The debt recovery process is just for big companies
Many small businesses turn to debt collectors due to limited internal resources, which may hinder their ability to pursue outstanding invoices as diligently as larger companies. Outsourcing debt collection allows small businesses to allocate more time to core business operations rather than chasing debts.
Debt recovery agencies often operate on a commission basis, providing a “no win, no fee” arrangement beneficial for small businesses.
3. The debt just isn’t big enough to engage a debt recovery agency
This statement doesn’t accurately reflect the reality. Debts can indeed be recovered even if they are relatively small, sometimes as low as $500, especially when utilizing online debt recovery platforms.
Consider this perspective: if a debt poses a significant enough obstacle to your business’s cash flow, it warrants the involvement of a debt collection agency to pursue it on your behalf.
4. Debt collectors are just too expensive
Highlighting that many debt collection agencies operate on a commission basis, the notion that debt collectors are excessively costly is unfounded.
In reality, the true expense of not recovering the debt is the entire amount of the outstanding invoice, whereas engaging a debt recovery agency typically involves only a percentage of that sum. Viewed as an investment, it presents a pragmatic solution to address an immediate issue impacting resources and business cash flow.
5. Going down this route will give my business a bad reputation
The misconception that debt collection firms engage in unethical practices is unfounded, particularly when dealing with reputable agencies. Governed by regulations such as the Fair Debt Collection Practices Act, these companies adhere to strict guidelines regarding how they interact with debtors and the frequency of contact.
Furthermore, trusted debt collection services uphold rigorous codes of ethics, conducting themselves with professionalism and courtesy when communicating with your customers and clients. By enlisting their services, businesses signal their commitment to prompt payment, which can alleviate the burden of pursuing overdue invoices.
