There was a lot to learn from the twenty people who responded to this survey. Fourteen people completed the survey itself, and another six wrote to say that collection agencies are seldom used, if ever, because their organization is diligent in its credit and collection efforts.

On average, the typical firm will let an account go 97 days past due before placing it with a collection agency or attorney. For roughly 68% of all firms, the earliest they will place a claim is between 51 and 142 days past due.

Question: What is the earliest (in days past due) that you will place an account with a collection agency? (N = 14)

Minimum: 30

Average: 96.5

Maximum: 180

When it comes to actually placing accounts for collection, the average is a bit over one month longer (129 days past due). Again, for 68% of all firms, accounts are typically placed for collection between 78 and 179 days past due.

Question: What is the average days past due of the all receivables that you have placed with a collection agency? (N = 14)

Minimum: 33

Average: 129

Maximum: 220

Both these findings comport well with the rule of thumb that accounts should be placed with collection agencies in the range of 90 to 180 days past due. The collection agencies themselves will tell you that collectability drops sharply for claims over 6 months past due, and even more so for claims over a year past due. That's a prime reason for agencies charging higher rates for claims containing AR that are over a year old.

As the following graph indicates, the timing of the placement of accounts for collection is relatively stable. Just over two-thirds indicated no change at their organizations, while the remainder were split evenly between earlier and later placements.

Observations: 

In terms of who has the final say on whether to place an account with a collection agency or attorney, roughly 4 out of 5 firms let the credit department head make that decision. Even when somebody else gives final authorization, the credit manager appears to be the prime influence on the decision to turn a customer over to collections.

Observations:

There was also a lot of agreement about when accounts should be placed for collections. Most of the survey participants appear to have a collection process they go through. Having made that effort and exhausted all other means, or when the customer becomes unresponsive or is constantly breaking payment promises, the account is turned over to a collection agency or attorney.

Question: What are the criteria you use for deciding to refer an account to a collection agency? In other words, what makes you say "I've had enough and am sending this past due account for collection?"

“If my team has made multiple contacts (4-5) and is not successful with resolving a balance we send the account to a collection agency regardless of age. It is best to be first in line to collect balances from insolvent customers.”

“We are a foodservice distributor and therefore have criteria that the accounts fall under. Sales is given an opportunity to collect if the account is still outstanding after 10 days I then take over. Once I have exhausted all efforts to collect and customer is uncooperative only then do I send to an outside collection agency. The majority of customers pay on time - approximately 98% of our accounts are current. My main goal is to work with the customer as we are family owned and operated and have a vested interest in seeing our customers succeed.”

“I've got 50 years under my belt working in credit. The few that have gone to collection you could count on both hands. I do have a great collection firm and they collect for me. They get the collection when I've hit the point of write off and I simply don't want to mess with it anymore. Our write off is less than 1/2% of total sales and we've had several years with no losses at all. I think collection agencies have their place.”

“After I've sent an internal final demand letter and have had no response from the customer. I've only sent about 5 accounts to collections in the last 20 years.”

“Not being able to establish contact or repayment arrangements.”

“When the debtor gives empty promises and avoids communication.”

“Lack of communication and broken promises.” 

“Customer unresponsiveness; broken payment promises

"Situational on a customer-by-customer basis.”

“When we have not received a payment and unable to contact the customer or they don't will not respond.”

“We work it until we have exhausted all means.”

“Whenever we feel our internal collection efforts have been exhausted.”

"We almost never place anyone for collection, but if needed it is always at approximately 150 days from invoice date. 

Additional Comments:

Here are some terrific additional insights on the role collection agencies play and how to make best use of their services. These are all from experienced credit pros whose organizations minimize the need for collection agency support. There are a lot of best practices you can glean from their comments.

 “I have been with the company for 38 years and we have only used a collection service twice without any results.  If I am not able to collect, we send in our field person to call on the customer and collect. However, the product we manufacture is usually critical for their production so holding up shipments works well in collecting past dues.  It is a constant battle to keep customers paying on agreed terms especially with new people coming and going.  I don't let days outstanding get that far out before I take action so I can tell you we very rarely write off any bad debt.” - Charmaine Lester, Credit Manager, Fusion Inc.

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“I haven't been in the business as long as Charmaine or with this company. Since I've been with this company; we don't use a collection agency.  The customer's account/shipment is placed on hold until payment is received or the issue is resolved of outstanding invoices; which has benefited us. Our administration and sales department gets involved with reaching out to the buyer/purchaser letting them know payment hasn't been received or communicating with the issue at hand.

“I agree with Charmaine, it is an uphill battle having customers pay within their terms.  As I found out, many companies have their payables outsource with international countries – so you're dealing with the time difference which becomes day long delays to receive a response. Since the pandemic is still in effect – there are accounts payables who still are working from home.  So, I've had to communicate more via email than phone.

“It's been a long time since anything has been written off to bad debt.” - Natalie Simmons, Credit Collections Specialist, GMM Pfaudler US Inc.

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“I know we were supposed to complete the survey (which I did), but to provide additional context since there's been several emails...

“I have rarely used collection agencies in over 25 years.  We insure the account is credit worthy or if we decide to take a bit more risk, the line is set so that if we don't get paid, it is not a great loss.  Also, we hold orders and don't ship another order until we are paid.   And on anyone large, we start an exit strategy long before they ever get to bankruptcy or the point of creating a bad debt for us. 

“This has always been my practice, so it is not specific to my current company's policies, but what I have found to be best practice over time. If you need a policy on how long you wait before you turn someone over to collection and you are using a collection agency multiple times a year, I would be looking at what my collectors are doing wrong.” - Rosa Ferraris, Credit Manager, Delonghi America, Inc.

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“Funai Corp did not respond to the survey below as collection agencies are not used. Our customer base is primarily retailers and our non-payment issues generally relate to non-compliance issues and those are addressed directly with the retailer.” - Kathy Brown, Credit Manager, Funai Corp Inc.

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“This is my 50th year in credit; 40 of those years as a Credit Manager. There's not much a customer can say, try or reference that I haven't already heard.  

“Our AR is in great shape even with COVID as an adversary. Our DSO has remained between 33 - 35 days since 2020.  Our system is set to stop any account from buying at 60 days delinquency. There are always exceptions to the rule.  My team of Credit Representatives get two reports a day (morning/late afternoon) of the accounts that have flipped to hold. They release those that are under the exception rules. The others are contacted to let them know the new order(s) is on credit hold until the account is brought current. I've knocked the over 60-day delinquency to 5% or less of total delinquency since I came to LVB.  Our write off losses are always less than .005% of total sales.  

“I do occasionally use a collection agency. They have their place in the credit world, however you have to research and be sure the agency you're using is a member of the Commercial Law League of America. They assist in the qualifications and collection history of any licensed collection agency. As in any industry, there are bad eggs. I've used the current agency for 25 years. They do collect for me.  It's always a last resort, but often an outside source with different people and approaches work. 

“We also make sure that credit applications are received and reviewed before a potential customer is approved. We keep them current within 5 years.  That credit application can often make the difference between a collection and a write off situation. Business credit reports are kept current to maintain the "finger on the pulse". 
 

“Any customer that continues to run 90 days or more in delinquency becomes my account.  I work the account until it is collected.  We often have to use different approaches to avoid a loss, but I prefer to collect than lose.  

“I have complete backup from the owners of the company. I'm not always sales favorite person, but we do work together. They are willing to jump in when necessary, to help get a customer to cooperate with Credit regarding their account. They realize what a big part collecting the receivables plays in commission and bonus.” - Deb Kissel, Credit Manager, Lafayette Interior Fashions

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“I am not going to say the number of years I have been in the credit business because it would date me.  However, reading the responses that have been sent makes me wonder how collection agencies stay in business.  I rarely send anything to collection and it appears that many of my counterparts don't either.

“One of the deciding factors is the dollars that are owed.  I will go straight to legal depending on the dollars and whether it is a very clear-cut situation.  This can be less costly and a route that gets quicker results. 

“Taking this one step further, I have always had as part of my credit application an agreement that if they don't keep their account current and we are forced to go to a third party they pay our legal or collection fees.  I have actually been able to get our fees mostly collected.” -  Cheryl Fischer CCP, Credit Manager/OE Manager, Krug Inc.