What is the primary function of a collection agency in accounts receivable?

The primary function of a collection agency in accounts receivable is to specialize in collecting overdue debts. Collection agencies are specifically designed to manage and recover debts that have not been paid by customers, often after a business has made multiple unsuccessful attempts to collect the amounts owed. Their expertise lies in employing various strategies and tactics to maximize recovery rates and reduce the financial loss for businesses due to unpaid invoices.

Collection agencies typically have experience and resources that are geared towards negotiating with debtors, understanding the legal aspects of debt collection, and working within applicable regulations. This specialized focus allows them to handle accounts that are past due more efficiently than many businesses could do independently. They often operate on a commission basis, meaning they earn a fee based on the amount they successfully collect, which incentivizes them to recover as much as possible.

Other options do not align with the primary role of a collection agency. Legal advice, searching for new leads, and financial audits fall outside the scope of debt recovery and are typically handled by different professionals or departments.