When to Outsource Collections (And When to Keep It In-House)

One of the most common questions we get: "Should I handle collections myself or bring in a professional?"

The answer isn't one-size-fits-all. It depends on your business size, resources, and the specific situation.

Here's a framework to help you decide.

The Real Cost of DIY Collections

Before we talk about when to outsource, let's get clear on what it actually costs to do it yourself.

Your Time

Average time per account: 2-5 hours (calls, emails, documentation, follow-ups)

Your hourly rate: Let's say $100/hour (conservative for most business owners)

Cost per account: $200-500 in your time

Opportunity Cost

Every hour you spend chasing payments is an hour you're NOT:

Acquiring new clients

Improving your product/service

Building strategic relationships

Actually running your business

Emotional Drain

Chasing money is stressful. It affects your mood, relationships, and decision-making.

The hidden cost: Burnout and resentment.

When to Keep It In-House

Scenario 1: Fresh Invoices (<30 Days)

Why: Early-stage collections are relationship maintenance, not enforcement. How to handle:

Day 7: Friendly email reminder

Day 15: Quick phone call ("Just checking in!")

Day 30: Formal follow-up

Tools you need: CRM with automated reminders

Scenario 2: Small Amounts (<$500)

Why: The cost of outsourcing may exceed the recovery amount. How to handle:

Automated email sequences

Quick phone call

Payment plan offer

Write off if unresponsive after 60 days

Break-even point: If it takes more than 1 hour of your time, consider outsourcing.

Scenario 3: Strong Existing Relationship

Why: You have rapport and can resolve it directly. How to handle:

Personal conversation

Understand their situation

Co-create a solution

Document everything

Red flag: If they're avoiding you, it's time to outsource.

When to Outsource Collections

Scenario 1: Accounts 60+ Days Past Due

Why: After 60 days, collection rates drop dramatically. Professionals recover significantly more. Expected recovery:

DIY (60+ days): 20-30% recovery rate

Professional (60+ days): 50-70% recovery rate

The math: On a $10,000 debt, that's $2,000-3,000 vs $5,000-7,000 recovered.

Scenario 2: Unresponsive Debtors

Why: If they're ignoring you, they'll take a professional more seriously. Signs it's time:

3+ unanswered calls

5+ unanswered emails

Promises to pay, but no follow-through

Scenario 3: Large Amounts (>$5,000)

Why: The stakes are too high to DIY. Professionals have tools, leverage, and legal resources you don't. What professionals bring:

Skip tracing (finding disappeared debtors)

Legal pressure (demand letters, liens, judgments)

Negotiation expertise (settlements, payment plans)

Capital solutions (lending to unlock payment)

The Hybrid Approach (Best of Both Worlds)

Here's what we recommend for most businesses:

Stage 1: DIY (Days 1-30)

Automated reminders

Friendly follow-ups

Payment plan offers

Stage 2: Professional Handoff (Days 31-60)

Transition accounts to collection agency

Agency handles calls, emails, negotiations

You stay updated via reports

Stage 3: Legal Escalation (Days 61+)

Demand letters

Liens and judgments

Court filings (if necessary)

Decision Framework

Ask yourself:

1. Is the account less than 30 days old? → Keep in-house

2. Is the amount under $500? → Keep in-house (unless unresponsive)

3. Is the debtor responsive and cooperative? → Keep in-house

4. Is your time worth more than the recovery amount? → Outsource

5. Is the account 60+ days old? → Outsource

6. Is the amount over $5,000? → Outsource

7. Have you tried 3+ times with no response? → Outsource

Still not sure? Take our free assessment or schedule a consultation.