The management of debt is a thorn in the side of any business. Unless appropriate measures are taken, debt management can easily outstrip the actual debt in terms of cost. This is why systems for debt management and collections are so critical to businesses that transact in debt, and this is why collections agencies exist. A debt management and collections system can streamline and simplify the process of managing debt and avert the need for hiring a collections agency, saving a business time and money almost immediately.

Generally, a business sells its debts owed en masse to a collections agency. The collections agency then tries to collect these debts by contacting the debtor and punishing their credit ratings. The arrangement is mutually agreeable: collections agencies are better-equipped to pursue debts than the average business. Maintaining an internal collections service is outside the scope of what most businesses can manage without sacrificing productivity in other areas, so hiring a collections agency and selling off debts is roughly equivalent to outsourcing any other task.

However, this is not the most efficient way to collect on debts. While running an internal collections program is usually not cost-effective, hiring a collections agency isn't as efficient as it could be. Any debt sold to a collections agency will be sold at a loss. It isn't actually a means of getting the amount owed, but rather a means of cutting the company's losses.

A debt management and collections system allows companies to handle collections on their own with a degree of automation. A well-built system will track debts owed and payments made, allowing a business to follow-up much more easily. Some systems are capable of autodialing and sending automated messages, and with some human intervention, it's even possible to send physical mail. In effect, it allows a business to take more steps toward collection before an outside agency is hired.

There are still advantages to hiring a collections agency if you are unable to collect your debt even with a management system. However, for businesses like service providers that may incur indebted clients on a regular basis without severing the business relationship, having an internal debt management and collections can greatly speed up the process by taking all of the steps a collection agency would open up with. Doing it internally is more efficient; you can bargain with the customer for the full sum or for a reduced amount on your own terms, rather than leaving this to the agency.

While it will never be as powerful as a proper collections agency, a debt management and collections system can make a business much more viable in the long-term by reducing losses from uncollected debt. For companies that would prefer an alternative to cutting their losses with a collections agency, they are necessary and invaluable.