Various challenges arise in managing commercial collections, primarily recovering the amount that would otherwise serve as your revenue stream. However, most businesses need to act faster and end up with considerable debt that needs to be recovered to revive cash flow. This is among some of the significant challenges in commercial collections. Let us explore how commercial collection challenges can be managed.
To navigate the complexity of accounts, businesses must decide how to develop strategies for business collection, including risk assessments, legal game plans, and devising alternative dispute resolution mechanisms to recover commercial debt effectively. One crucial aspect is always to keep a detailed record of all transactions, communication, correspondence, and actions taken during the collection process to avoid any issues later.
Debt collection is a challenging feat by any measure and an even more complex one when you consider the amount of debt that mounts up in B2B collection processes with high-value debts. A regular part of the recovery process is the payment cycle. A payment cycle definition is the period it takes for a business to complete its financial transactions, including accounts payable and accounts receivable. The process begins with invoicing customers for goods and services rendered and paying suppliers or vendors for goods or services received.
The timeline from the invoices generated to the customer to their payment for the service is just the start of the payment cycle. Even after the amount has been paid, the business that has lent the service or goods has its obligations of paying vendors and suppliers, known as accounts payable. This payment stage heavily relies on prompt payments from the customers who acquired the goods or services to make good on their promise to pay on time. Any lags in this stage will inadvertently affect the following process in line with accounts payable.
Once an account becomes delinquent and it becomes challenging to recover the amount despite debt recovery efforts, additional steps need to be taken. If a customer refuses to pay or is highly late on their payments, businesses have no choice but to engage in legal action. Various legal issues surround distressed debt because cordial communications fail, and assertive collection strategies further harm whatever is left of your customer relationships. If the situation escalates to a point where a customer cannot pay their debt, a business must hire legal counsel to carry out legal collections. This process is usually reserved for these seriously past-due accounts with little hope of recovery. In this case, collection agencies procure legal counsel and settle the debt because recovery becomes impossible.
Involving legal action in the collection process is quite cumbersome as most businesses do not have the resources or the financial bandwidth to do that. They will often have to take the help of collection agencies with legal counsel on their roster to manage legal collections, but often at very high legal fees and involving lengthy court proceedings. Most legal issues surrounding distressed debt end in settlements, as companies want to conclude collection efforts on a delinquent account and customers want to get the weight of the debt off their back – so the result is an investigation of existing assets that customers have, so they can sell those assets, like a house or vehicle and pay off the debt. It is not the ideal conclusion, but it is often the only choice when all efforts to collect debt amicably and then forcefully fail.
Even though recovering debt is not easy, it is worth considering the debtors’ or customers’ equally tricky situation. One of the most common causes of delinquent accounts is debtors experiencing financial hardship. In commercial collections, there are usually fewer issues with individuals facing economic instability and more businesses struggling to stay afloat. Most small businesses that rely on the goods or services of large companies will end up in collections because they cannot reconcile their expenditures and need help to make regular payments on the services and goods they acquire. These businesses often struggle with financial instability in debt repayment and will mostly suffer from delinquency. Most debtors who cannot pay have poor financial management skills and land in this sticky situation because they do not plan. In some cases, the businesses that cannot pay their debt are handling their own accounts receivable issues and are stuck in their own collection processes, creating a cyclical financial deficit for them – hence pushing them further into delinquency.
Even though businesses often face issues of financial instability, only some do reach out and consider debt financing or financial counseling. A recurring problem of economic instability can make debt repayment harder. Still, businesses can hire debt financing agents to budget their spending and carve out small amounts of money from their profits to repay their debt. It is always an ongoing struggle to meet debt recovery deadlines, but with a bit of insight and expert help, most businesses can find a workaround to their debt disability.
Unlike individual consumers, businesses often deal with large transactions, meaning they have high debt value when they do. Being unable to pay large debts puts a dent in a company’s cash flow, often leading to bankruptcy. But it does not have to end that way since most businesses also look out for any financial pitfalls and seek financial counseling. Any company that fails to repay its debt eventually succumbs to debt settlement or sells its debt. However, going a step back, debt management can help businesses get control over their finances to find solutions to their overwhelming issues with debt.
Commercial debt management often involves engaging an accounting team that can devise strategies for financial planning and cost-cutting solutions. Smaller businesses must have commercial debt management strategies that can expand existing revenue, budget a debt repayment plan, and devise ways to save costs in manufacturing, shipping, and inventory. Financial analysts are helpful in this case because they can assess the situation of the business and recommend actionable measures that can help set up a debt repayment structure without compromising the existing expenses of the company. To achieve proper debt management data, a primarily assigned team should keep track of all the money spent and ensure timely and regular payments toward clearing debt to avoid bankruptcy.
When managing commercial debt collection regulations, the Fair Debt Collections and Practices Act must universally apply to consumer debt. But that does not mean that there are no checks and balances when it comes to commercial debt. Usually, there are contractual agreements between businesses in commercial debt collection, multiple state regulations and laws and industry regulations that streamline and monitor commercial debt collection practices.
However, there are variable debt collection compliance standards that are often overlooked when collecting debt from other businesses. Since the deb value is usually high in commercial debt collection, companies frequently resort to aggressive tactics to recover their unpaid accounts and forgo contractual obligations that delay efficient debt recovery. One of the reasons that commercial debt collection becomes cumbersome is the need for adherence to debt collection compliance and debt settlement compliance, which leaves many businesses without safeguards, due to which they incur huge losses in accounts receivables and cash flow. This challenge remains ongoing, but stricter industry regulations and state laws can help regulate commercial debt collection compliance violations, mitigating compliance risks that would continue to rise. It is harder to monitor compliance when businesses are internally making collection efforts, as they may need to know which rules to follow. However, involving a debt collection agency ensures that compliance is maintained throughout the debt collection process.
There have been considerable challenges to navigating commercial collections, especially for businesses that need more resources. Small businesses often need help to get help from third-party helping agencies to recover unpaid accounts, especially when the cost is a factor. Despite the ample possibilities of outsourcing your debt collection processes to a collection agency, most businesses would be hesitant due to cost issues. Based on where you are, the cost of debt collection services can vary across states, keeping many companies from engaging debt collection agencies for commercial collections.
Various factors would impact the debt collection costs, starting from the complexity of the debt to service fees charged for contingency collections. Businesses that do not act fast and engage collection agencies sooner often incur a higher cost for debt collection services. Another consideration is the cost of debt collection software since most agencies implement skip tracing and scrubbing to validate debt and locate customers for debt collection. Businesses must manage this cost when engaging a debt collection agency, which can be challenging if proper budgeting is not implemented. There are various challenges in managing the cost of debt collection processes through a business collection agency. But that does not mean there is no way out of those challenges.
Searching for a collection agency that suits your business needs and can continue collection efforts as you like is essential. Do some research for a reliable agency with a good reputation and history of recovering unpaid accounts, even if they are hard to recover. Cedar Financial is your ultimate AR recovery partner if you are looking for a reliable commercial debt collection agency. With over 30 years of experience in the ARM industry, Cedar Financial has robust debt recovery systems that can help recover the most stubborn debt. They train their commercial collection agents to negotiate debt disputes and manage settlements and legal collections through their vast network of attorneys nationwide.
Suppose you need help managing your commercial collections. In that case, you need a strong force in the industry that can streamline your recovery efforts and maximize your revenue without depleting your already vulnerable resources. Partnering with Cedar Financial can provide a comprehensive path to collections, aided by the best-in-class collection talent and recovery strategies honed over decades. Many challenges might be plaguing commercial debt collection, but none can be overcome with a reputable and dependable commercial collection expert like Cedar Financial.
