How to Send an Invoice to Collections

Unpaid invoices create cash flow disruptions and operational difficulties for businesses and individuals. When internal efforts to recover these funds are exhausted, a collections agency may become a necessary solution. These agencies specialize in recovering overdue debts, primarily by contacting debtors and working to secure the outstanding balance.

Preparing for Collections Referral

Before engaging a collections agency, preparing and organizing relevant information is essential. Businesses should first exhaust their own efforts to collect the debt, such as sending multiple reminders and making direct phone calls. Documenting clear communication of payment terms and these internal collection efforts is necessary for a successful collections referral.

A collections agency requires specific documentation and information to pursue a debt effectively. This includes the debtor’s full legal name, current address, phone number, and email. Details of the original invoice are needed, such as the invoice number, date of issue, the exact amount owed, and the due date. A clear description of the goods or services provided, along with the agreed-upon payment terms, must also be included.

Proof of delivery for goods or services, if applicable, is important supporting documentation. All records of communication regarding the debt, including emails, call logs, and letters, should be compiled. Any partial payments made by the debtor must be accounted for, as well as any disputes raised by the debtor and how those disputes were addressed. This comprehensive data set is important for the agency to verify the debt and facilitate effective communication with the debtor.

Selecting a Collections Agency and Initiating the Process

With all necessary information prepared, the next step involves selecting a reputable collections agency. Key criteria for choosing an agency include their licensing and regulatory compliance, particularly with federal laws like the Fair Debt Collection Practices Act (FDCPA) and relevant state laws. State-level licensing is generally required, though regulations vary by jurisdiction.

Agencies typically operate on a contingency fee basis, meaning they only receive a percentage of the amount successfully collected. This “no collection, no fee” model is common, with fees often ranging from 20% to 50% of the recovered amount, depending on debt size and complexity. It is also important to consider an agency’s reputation, reviews, and specialization, such as commercial versus consumer debt collection. Look for agencies that provide regular updates on contact attempts and payment negotiations.

Initiating the referral process involves formally handing over the prepared documentation to the chosen agency. This can often be done through online portals, email, or direct contact. After providing the organized information, a service agreement or contract with the agency will need to be signed. This agreement outlines the terms of their engagement, including the fee structure. The agency will then begin their collection efforts.

Understanding the Collections Process and Outcomes

Once an invoice is referred, the collections agency begins its efforts to recover the debt. The agency will typically initiate contact with the debtor through various methods, including phone calls, letters, and emails. Their approach often involves negotiating payment arrangements or seeking a full settlement of the outstanding balance.

During this period, the original creditor’s role involves providing any further information requested by the agency. It is generally advisable for the original creditor to cease direct communication with the debtor once the account has been placed with the agency to avoid confusion or interference with the agency’s efforts. The agency will keep the creditor updated on their progress, including contact attempts and any payment or settlement offers.

When payments are successfully collected, the handling of funds and fees is typically outlined in the service agreement. Often, the agency collects the payment and then remits the net amount (after deducting their contingency fee) to the client. In some cases, the debtor might pay the original creditor directly, but the agreed-upon fee is still owed to the agency. Collection agencies may also report delinquent accounts to credit bureaus, which can negatively impact a debtor’s credit score and serve as a tool in the collection process.

If the agency is unable to collect the debt, various outcomes are possible. The account may be returned to the original creditor, or the agency might advise on further actions, such as legal recourse. While legal action is a possibility, it is a separate process with its own costs and considerations. Ultimately, if collection efforts are unsuccessful, the original creditor may need to consider writing off the debt.