When should an account be turned over to a collection agency?

If your costs of continuing to try to collect on an overdue account become prohibitive or the amounts are considered too small to warrant your collections department to pursue, you have three options: write off the debt; hire a collection agency; or hire a collection attorney. If the amount owed isn't sizable, the best choice may be to write off the debt.

Deciding when to turn over an account to a collection agency varies by company, industry and the vendor-customer relationship. As a general rule, most companies consider an account 120 days overdue as a candidate for a collection agency. However, if company and its customer have an irreconcilable dispute over an invoice or the debtor fails to cooperate, an account might be assigned to a collection agency much sooner, as early as 30 or 60 days past due.

Although collection agencies frequently succeed in obtaining monies owed, using one could be costly. Fees could total as much as half of the debt. Collection agencies typically don't provide you with legal representation if it becomes necessary to file a lawsuit.

Collection attorneys’ rates may be similar to collection agencies’ fees. But hiring a collection attorney provides you with the advantages of having someone to represent you in court. If your company anticipates pursuing a significant number of bad-debt lawsuits, you may want to hire a collection attorney.

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