A study released by the Association of Credit and Collection Professionals (ACA) has given economists something to think about in regards to debt collection services.
Not only are economists who have an eye on the entire U.S. economy intrigued by the study, it’s giving business owners proof that collection services are extremely valuable in helping with their cash flow.
According to the study, the collection services industry contributed nearly $40 billion to the economy in 2005. That number is related solely to what was returned to businesses that offer consumer credit, so the total number is likely far higher than $40 billion.
So how does this affect the economy as a whole? Experts believe that when collection services do their job and get money owed back to the businesses, it keeps prices lower. Businesses don’t have to figure in to their prices the amount that they estimate that they’ll lose to consumers that decide they will take no responsibility for payment.
Some business leaders believe that the appropriate time to turn over past due accounts is more of an art than a science. There is a delicate balance that has to be observed, but the small and medium-sized businesses are keen to keep their cash flow going and waiting too long can be very counterproductive.
Experts agree that business owners must be aggressive in their approach to how they plan for collections. The experts also agree that leaving collections up to the professionals is also the best approach for small business owners.
For those business owners that are still contemplating the idea of contacting collection companies, there are a few guidelines to follow that are used regularly for businesses across the board. First off, how long should you wait before contracting with collection companies? The old standard was four months, but due to the economy and the need for positive cash flow to keep the business growing, the new standard is somewhere between 60 and 90 days. If the client hasn’t paid up on their due date and still makes no productive effort within that timeframe to respond to your invoices, it’s time to turn it over to professionals.
Third-party collection agencies are becoming the go-to source in keeping the cash flowing for businesses across the country. A recent Federal Reserve report puts the percentages of companies going with these third parties at an all-time high as companies have discovered the value in using an outside source to recover money that is owed to them.
Companies have a niche, a specialty that they believe they do best, and that’s how they market themselves and make their money. But that money doesn’t always come in like it should after services have been rendered. Most companies don’t have experts in-house that know the regulations well enough to get that money that’s owed to them, which is where collection agencies come in to play.
The shape of debt in America continues to evolve. Student loan debt finally surpassed credit card debt late last year, and now the number of us with a third-party debt collection service has hit the highest amount yet.
According to a Federal Reserve bank in New York, the percentage of Americans with third-party collection accounts hit a peak number in the final quarter of 2012 to 14.6 percent. That’s a rise from 14.38 percent, the previous high recorded in the second quarter of 2011. Interestingly, the total balance of the accounts actually decreased in late 2012.
The average account collections balance fell from $1,546 to $1,499. But overall, consumers are looking at $11.3 trillion worth of debt, which is about $1.3 trillion lower than the peak indebtedness recorded in the third quarter of 2008. According to industry experts, the latest numbers show that consumers are coming to the apex of what they refer to as a “deleveraging cycle,” but that won’t be confirmed until the numbers come in during future quarters.