How much cost your collection strategies?

20 Dec, 2016 | Business, Cash flow, Payment

Even processes that are designed to gain money still cost money. It’s an unfortunate fact of life and business that we all have to work around, making every process a matter of optimizing your income to outmatch the expense. The same can be said of the collections process, which revolves entirely around gathering money. There are several factors that are a part of the expenses involved in the collection process, and knowing what they are can help you optimize them for minimal expense and optimal income.

Even processes that are designed to gain money still cost money

Thankfully, the majority of expenses involved with the collection process has to do with the employees that deal with the process in the first place. The largest expense of the process is the salary and incentives you set aside for your employees. Obviously the more people you have involved with the collection process the more people you are paying, and the more expensive the entire process is as a whole.

Of course, it may seem difficult to mitigate this expense, but the solution is quite simple. The more efficient your team is in dealing with the collection process, the less of them you will need. Small, efficient teams are just as good as and more cost effective than large, average teams, allowing you to optimize the amount of money that is spent on salaries and forms of incentive.

Following this expense, you must deal with operating expenses, which are usually consistent and moreover, out of your control. Operating expenses includes factors such as transportation and rent, which are usually costs determined by individuals or factors you can’t do anything about. That said, you can always cut back on certain avenues of execution within operating expenses, but you’ll have much greater optimization if you worry about the other factors, which includes fees to collection agencies.

If you’re involved in the collection process, then you already know that collection agencies are the final fallback plan for collecting invoices and debts that the client will likely never pay. Of course, they don’t work for free, and those fees can rack up over time, often forming twenty to forty percent of your collection process expenses. Of course, the best way to cut down on this expense is to not make use of collection agencies at all.

Not that you shouldn’t fall back on them at all when the situation grows desperate, but if your team is efficient and proactive, you will have a higher chance of avoiding the need for a collection agency. There are many strategies that can be used to improve the effectiveness of your collection team, and through those strategies you can reduce the need for collection agencies and therefore mitigate your expenses even further through a reduction in service fees.

In the end, the collection process will drain your fiscal resources, like any process in business does. But like any process, the magnitude of that fiscal drain can be greatly mitigated through smart strategies and careful planning.

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