No entrepreneur will be eager to use a collection agency. Of course, you hope that all invoices will be paid neatly on time. But what if they don’t? In this article you will read what a collection agency is and when to use one.
What is a collection agency?
A collection agency (Dutch: incassobureau) is a company that collects outstanding debts on your behalf as a creditor. Actually, the collection agency takes work from you: they become the creditor and collect the outstanding debt on your behalf. The collection agency charges collection costs to the debtor, which must be paid on top of the debt. In short, the agency makes sure you get your money.
Difference between bailiff and collection agency
The terms collection agency and bailiff are often used interchangeably. But there is a clear difference. This is because a bailiff (or court bailiff) has more legal powers than a collection agency. Hence, a collection agency often hires a bailiff to perform certain tasks, tasks for which the agency is not authorized.
What does a bailiff do?
Before a bailiff can get to work, he must have a court order. With this legal authority, he can do things like:
– Seize goods
– Force a sale
Thus, a collection agency does not have these powers. Hence, the cooperation between a bailiff and a collection agency is common.
What does a collection agency do?
Usually, a collection agency’s (Dutch: incassobureau) range of services is quite extensive. They are all services that should directly or indirectly ensure that your invoices are paid. Some of those services are:
A collection agency will send the debtor a letter containing a reminder to still pay the outstanding invoice.
The collection agency may also make payment arrangements with the debtor.
If a debt remains uncollectible, a subpoena is issued. This is done through a bailiff or an attorney.
Many collection agencies can take over debtor management. This can prevent unnecessary collections.
Some collection agencies can map out the credit profile of a potential client, based on information about bankruptcies, debt restructurings, et cetera.
When to use a collection agency?
Most business owners will choose to use a collection agency if they are unable to collect outstanding invoices themselves. If you have provided a service and met the requirements in doing so, you are entitled to the agreed payment. You can hire a collection agency per uncollectible invoice, or you can agree on a partnership.
Some companies choose to enter into a permanent partnership with a collection agency. Many collection agencies offer the option of taking over debtor administration. The agency then sends reminders and makes sure the invoices are paid. This way you have less to worry about with your accounts receivable administration.
For debtors abroad, you can use an international debt collection agency.
Using a bailiff or collection agency?
You might say it’s best to choose a bailiff, since they have more authority. But bailiffs are also more expensive, and collection agencies are usually very adept at collecting outstanding invoices.
Usually, a collection agency is enough to get a customer to pay. And if it does come to the point that a bailiff needs to be involved, the collection agency can also engage them themselves.