It is without doubt that in-house collection offers some advantages because it can move swiftly to recover small debts. Since contingency cost of a third party collection agency range from 10- 30 percent, in-house collection assures the business of more money provided the debts are successfully recovered. It is also easier for in-house collection to manage customer relationship thus retaining business relationship with the debtor.
But having an effective in-house collection may be expensive and time consuming. To maintain an in-house collection, some businesses spend huge sums of money on staff, telephone calls, invoicing, visits to the debtor’s place of business with little success to show for their efforts. In fact some in-house collections run at a loss. Conversely, the overhead of staffing and running costs would be greatly reduced upon retaining an efficient external collection agency.
Since the success and growth of any business depend on effective recovery of its outstanding debts, the task of debt recovery may distract the business from the main aim of setting it up in the first place. Hence, retaining a third party collection agency would give the business the latitude to focus on core business operations.
Again, as a result of the close business relationship between the creditor and the debtor, it may be difficult for in-house collection to be effective. Experience has shown that the debtor would most likely take a third party debt collection agency more seriously than an in-house collection.
Furthermore, the harsh economy climate in most jurisdictions has made it more difficult to recover debts. Some in-house collection relies on orthodox methods that have consistently failed to yield positive results. The modern and proven recovery strategy of a third party collection agency would enable businesses to promptly recover outstanding debts.
Besides, with the increase in international trade and investment, it is not uncommon for the creditor and debtor to be in different countries or even continents. It would be difficult if not impossible for in-house collection to recover debts across borders. This is because the risk and cost of going across borders to recover the debt may be more than the debt itself. It is therefore prudent to retain the services of a debt recovery agency within the jurisdiction of the debtor to recover the debt.
Also the process of recovery of some debts may be technical. Businesses may have to invest heavily on continuous training of their staff to navigate this cumbersome terrain. But this dilemma would be put to rest upon hiring a debt recovery expert skilled in the technical process of debt recovery. In this circumstance, all that the business is interested in is the prompt recovery of its debts.
In most cases, third party collection agencies are paid a contingency fee upon recovery of outstanding debts. Unlike in-house collection, third party collection agencies only get paid when the debts are recovered. Therefore there is higher incentive to be efficient and record higher collection rates. It is not out of place for third party debt collection agencies to buy outstanding debts of businesses and bear the risk of the recovery of such debts from the debtors.