Ask Gar Shaw for some insight into the collections business, and the general manager of London-based Torlon Credit Recovery Limited can’t resist the obvious. "In the collection business, accounts aren’t like a fine wine," he says. "They don’t get better with age."

And Shaw should know. As a registered collections agent, he’s been calling in bad debts on behalf of clients for 20 years. But while the reality of aging debt has remained constant, the collections industry has evolved dramatically, shedding its dingy, backroom persona and expanding its reach to include a number of accounts-related services.

To be sure, collection of outstanding invoices is still the mainstay of the industry. But today’s agencies often work alongside corporate clients to handle all aspects of accounts receivables. Many also provide small claims court actions. And, as Shaw notes, professionalism in dealing with outstanding debtors has become job-one in a business climate demanding of client retention—a far cry from the old perception of a diminutive man sitting under a solitary light bulb screaming at debtors over the phone.

"The client is the person we represent," stresses Shaw. "They don’t want their image tarnished by having a bill collector pounce on their customer. They want to be assured that the company representing them is professional and willing to work with the debtor to solve the problem…we’re almost a mediator as opposed to a collector."

According to the Ontario Society of Collection Agencies (OSCA), approximately $10 to $12 billion worth of debt is assigned to collections agencies in Canada for recovery each year. Of that, the industry successfully recoups about $2 to $3 billion, or about 20% of business listed.

All agencies are regulated by the government in the province where they conduct business, and almost half of the collections industry in Canada is right here in Ontario, with about 183 agencies. In Ontario, a collections agent must be registered with the Ministry of Business and Consumer Services and is bound by legislation in the Collection Agencies Act (Ontario), which stipulates rules of business conduct right down to hours of operation. Though most agencies work within their provincial borders, there are about a dozen national agencies that collect coast-to-coast. Some also work with U.S. clients—a quickly-growing sector of the Canadian industry.

So who uses the services of a collection agency?

"Everybody from a one-man operation to major corporations," says Shaw. "Every business that’s conducting business from time-to-time has problems. When you’re involved in credit you’re going to take the risk."

Jim Shaw (no relation to Gar), OSCA president and vice president of operations for Nor-Don Collection Network in Toronto, agrees. "We touch all sectors of the business community throughout Canada—federal and provincial government, major banks, retailers, utility companies. If you’re in business, you’ve got accounts receivables."

And if you’ve got accounts receivables, you can be guaranteed that, sooner or later, one of your clients is not going to pay up. Most of us, however, don’t have the time to chase down late payments, or simply are not comfortable calling on delinquent clients. But as Gar Shaw points out, letting an overdue invoice languish won’t bring in the money.

"If you’ve got a file that’s 90 days, chances are they’ve already had the product for 30," observes Shaw. "Really, they’ve owed you money for 120 days. They’ve had the product for 30 days, so they’ve had use of your money for 90 days. Nobody’s paid you. Not even a promise. There’s a problem there."

Even so, many businesses are reluctant to pass overdue accounts over to a collections agency because they don’t want to pay to collect. But as collection professionals are quick to point out, if you can’t get any results through your own efforts, you won’t be getting any money at all.

On the other hand, if you send the account to an agency, it doesn’t cost you a penny until they collect. Because agencies work on a contingency fee basis, if they can’t collect, they don’t get paid. And if you list an account for $1,000, but the agency only recoups $100, then they only collect on that amount—which is why they work hard to get your money for you.

Fees vary widely in this business, so that’s one thing to consider when hiring an agency. But, cautions Shaw, track record and professionalism should be the most important consideration.

"This fellow may owe you money and if you get an agency that’s hounding and harassing him, what you may not be aware of is that this fellow’s next door neighbour is your biggest client. And if word got out that you were using an agency that was using strong arm, unprofessional tactics, you would be jeopardizing your other customers. So we have to ensure that each file is handled professionally and properly and confidentially, because we don’t want to tarnish the image of a client."

Torlon will charge 20% for a successful collection, but it can go as low as 7%, depending on volume of accounts or dollars listed.

Shaw says the chances of getting your money "should be very good, provided the debtor company is still operational and not in the process of being bankrupt.

"But what happens is a company will hold off listing with an agency because they’re afraid of paying the commission fee. And, really, they will get 100% of nothing, as opposed to going to an agency when the account had turned 60 or 75 and letting an agency go in and get out and get the money very quickly. At least they’re still getting 80 cents on the dollar."

Peter Courneya, owner and general manager of Peter Courneya Collection Services, charges one-third of money collected, but points out that some agencies also charge opening and closing fees, and he doesn’t. Courneya reports a 40% to 50% success rate in collecting overdue accounts. (According to OSCA figures, the national average sits at about 30%.)

In business since 1998, Courneya is sole proprietor with one commissioned sales person/collector on his payroll. In his first year of business, the agency collected $150,000 in bad debt. That number doubled last year with $300,000 recovered for clients. He attributes his success to being in the financial industry for almost 30 years, including a position in management with (then) Avco Financial Services for 18 years.

"The way I approach clients is to tell them, ‘You can either let (overdue accounts) sit in your office and collect dust, or you can have a collections agency work them for you and when they are successful you end up getting two-thirds of your money back so that’s not a bad ratio rather than having them sitting on a desk.’"

Collectors also say bringing in a third party will generally place a higher priority on your invoice over other accounts on the debtor’s desk.

"When an account goes to a third party, more often than not the debtor company is aware that the client means business and a lot of times their account goes from the bottom of the pile to the top of the pile," says Shaw. "It’s just because they’ve got a call from a third party and they realize this is a business."

But because this third-party will be placing calls on behalf of your firm, Jim Shaw says it’s vital to do some up front homework before selecting an collections agency. Most importantly, the agency should reflect your business culture. After all, a tardy account could simply be a result of a processing error, and should that business be subjected to unprofessional tactics, the relationship might suffer irreparable damage.

"You want to look for an agency that mirrors your culture and beliefs," he says. "A collections agency should not be, nor should you expect it to be, a snapshot of what perhaps existed 40 years ago—the image of a real aggressive person knocking on someone’s door. That’s really not the case anymore. I think you should look for an agency that reflects how you conduct business."

Above and beyond chasing overdue accounts, collections agencies are also playing a more prominent role for clients looking to outsource a number of accounts receivable functions, including initial invoicing and account monitoring services.

Courneya, for example, offers a mailing package in which clients purchase 50 "coupons" for $350. Each coupon covers a three-letter mailing in 10-day intervals, notifying a client of payments in arrears. If payment is received as a result of the mailing, all monies recovered go to the client. If the mailing yields no results, the client can then pursue the account using Courneya’s collections services, paying the usual contingency fee if money is recovered.

And should the collections process fail, many agencies offer services to help clients through the small claims court system. Eligible claims must be under $10,000 (plus interest), and services provided by collections agencies often include all requirements to complete the claim. Cost for disbursements required to file the claim are generally awarded back to you, if you win the judgment. But, cautions Gar Shaw, this really is the court of last resort because even when judgment is in your favour, if the debtor has no assets there’s no way to enforce the ruling.

"If we feel the cost is warranted and there is an asset that can be attached through a bank account or some product or an account receivable, we will recommend legal action. And that is up to the client’s discretion. That is only after all the efforts are exhausted to recover the monies before taking that next step. Because when you go to court you’re never sure which way it’s going to go. It’s more efficient to pay someone on a contingency fee to collect it than to throw good money after bad in hopes that someday you’ll collect the debt."

In the end, staying on top of outstanding invoices really is your best bet. That means keeping on top of your accounts receivables or hiring a collections agency to do that for you. The Golden Rule for any business: The longer you sit on it, the lower your chances of recovery.