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If collections are a part of your responsibility, chances are you'll want to hire a collection agency at some point. Debt collection is a job best handled by professionals, and since you rarely have to pay for debt recovery up front, hiring one frees you up to do other things that are more in the line of business building. But how do you choose from the various debt collection agencies? Following are some things to look for.
Make Sure They're Licensed
A very important primary consideration is working only with a licensed collection agency. If they are not, then you can be held personally liable when they violate collection laws. Being accused of something, such as harassment, can cost your business up to $50,000 per incident.
An important second consideration is to make sure they're licensed not only in your resident state, but in all states. Because the collection laws vary by state, and because debtors can relocate, its important that the agency you hire can collect across state lines, and are aware of the various states' collection laws.
Bonded And Insured
Related to being licensed, its equally important that a collection agency is both bonded and insured. Should the agency ever be charged with a lawsuit, you want to make sure they have the financial resources to handle the lawsuit.
Also, should a collection agency ever go out of business, and they've collected money on your behalf that hasn't been distributed to you yet, then you'll need recourse in order to get your money. This is happening with increasing frequency in these challenging economic times, particularly with smaller local and/or regional agencies.
Hold Harmless Agreement
Make sure you get this in writing, as part of your agreement or contract with a collection agency. This protects you and your business from any legal liabilities on the part of the collection agency. Without this in writing, you could be held equally responsible for their actions, since you've hired them to act as your third party agent.
Fee Structure
An important first question when interviewing a collection agency should be how they structure their fees. While some of them charge upfront, pre-paid flat fees, there are many who take a percentage of any recovered money. This costs you less in upfront cash, obviously, and it also means they're guaranteeing their ability to perform for you, since they're only paid when they collect.
However, flat fee-based agencies are to be considered for some circumstances. If you tend to turn over a consistent number of delinquent accounts, and/or if these tend toward larger balances, you might consider a collection agency that assesses a flat fee. You will save far more money over the long term, as your total cost of collection can be mere pennies on the dollar. Since your collection costs are fixed and a known quantity, you can afford to turn over delinquent accounts sooner, rather than later. This will greatly improve the agency's recovery rate, thereby netting you more money, and sooner!
Debt Portfolio Scoring
Not many collection agencies offer this, but for those that do, this is a very beneficial service to business owners. Basically, this tool allows the collection agency to take an overall view of your debt portfolio, and with scoring software, they can predict which accounts are likely to pay and which ones will prove more difficult to collect on. This allows you to focus your resources on those accounts with the greatest potential for yielding you positive results before turning them over to a collection agency.
Because scoring can be done on a batch basis, pre- and post-default, this can yield a lot for your business. You can now know which accounts deserve more of your internal efforts, and are likely to pay you, as well as the problem accounts that should be outsourced to a collection agency.
Depending on the business, as well as the size of the debt portfolio, the cost for this service can be mere pennies.....often, even free!
Do They Belong To Professional Organizations?
Your next question should be if they are members of one of the two professional societies for collections people: The American Collectors Association or The Commercial Law League of America for commercial collection agencies. Membership in these associations indicates a commitment to professional service.
For example, both organizations require perfectly professional conduct from their members. Not only do they conform to The Fair Debt Collection Practices Act, they are committed to training courses for members to teach the latest collection techniques.
Online Account Monitoring?
You also want to pick a collection agency that will let you view your accounts online. Though you're delegating the task to them, you need to be able to keep an eye on things for your peace of mind. An agency that allows you online access to your accounts is preferable to one that does periodic reporting in the mail.
Another criteria for picking a collection agency is whether or not they do their own collections or send out files to other agencies. Those who send out files to other agencies often use offshore call centers, which are mentally easier to dismiss to debtors. In addition, whether or not the contracted third parties are offshore, you have no control over their professionalism. For this reason, you should pick an agency that does all their own collections work and you won't be sorry.
Other Important Considerations
When looking to outsource your delinquent receivables to a collection agency, be sure to ask these questions as well:
• Do they have experience in your particular industry?
• Do they mirror your business philosophy? (i.e., if you run a medical practice, will they be diplomatic when talking with your patients? You don't want to risk getting a negative reputation in the community because you've partnered with an agency known to use harsh tactics when handling patient collections)
• Do they offer the option of reporting to the credit bureaus? While some business owners may not care for this feature, many others see the added incentive this can provide in getting debtors to pay. Most people would rather not damage their credit rating. In addition to credit bureau reporting, some agencies have the ability to get "trigger" data from the credit bureaus.
For instance, a debtor may have moved to another state. If he/she attempts to rent an apartment, get utility service, start a new job, etc., this will be reported to the credit bureaus. All collection agencies aren't privy to this updated, real time information. The ones that offer this ability can have far greater recovery successes. When a debtor "gets back on their feet" financially, this information can be sent to the agency, thereby alerting them to restart the collection efforts.
• Do they offer skip tracing for debtors you can no longer reach? Are there additional fees, if any, for this service?
• Can they provide references of other business clients similar to yours?
• What kind of, and how much training do their collectors receive? Do they hire high school graduates? College graduates?
• How are their collectors paid: by the hour? Commission, based on what they collect? Its plain to see that collectors paid on commissions are more motivated to collect money, than those simply paid by the hour.
• Do they offer legal services, if and when necessary? Some cases may need to be referred for legal action. When this becomes necessary, who pays for the court filing fees and other court costs? Some agencies charge their clients additional monies for this service, if they offer it at all. Others pay for it themselves.
Finally, make sure your collection agency has staff working outside of standard business hours in order to maximize your collections efforts. If you have collections all over the country it's better to hire an agency with offices nationwide in order to deal with disparate time zones. Even if all of your collections are local, make sure the collection agency has some people who work early and some who work late, because collections calls outside of the 9-5 time frame are usually more successful.
When it comes time to choose the best collection agency for your business, the consultants at DebtCollectionSteps.com have the wealth of experience to help you make the right choice. We can help you navigate all the various options available, giving you advantages and disadvantages for the different types of agencies out there.
Make Sure They're Licensed
A very important primary consideration is working only with a licensed collection agency. If they are not, then you can be held personally liable when they violate collection laws. Being accused of something, such as harassment, can cost your business up to $50,000 per incident.
An important second consideration is to make sure they're licensed not only in your resident state, but in all states. Because the collection laws vary by state, and because debtors can relocate, its important that the agency you hire can collect across state lines, and are aware of the various states' collection laws.
Bonded And Insured
Related to being licensed, its equally important that a collection agency is both bonded and insured. Should the agency ever be charged with a lawsuit, you want to make sure they have the financial resources to handle the lawsuit.
Also, should a collection agency ever go out of business, and they've collected money on your behalf that hasn't been distributed to you yet, then you'll need recourse in order to get your money. This is happening with increasing frequency in these challenging economic times, particularly with smaller local and/or regional agencies.
Hold Harmless Agreement
Make sure you get this in writing, as part of your agreement or contract with a collection agency. This protects you and your business from any legal liabilities on the part of the collection agency. Without this in writing, you could be held equally responsible for their actions, since you've hired them to act as your third party agent.
Fee Structure
An important first question when interviewing a collection agency should be how they structure their fees. While some of them charge upfront, pre-paid flat fees, there are many who take a percentage of any recovered money. This costs you less in upfront cash, obviously, and it also means they're guaranteeing their ability to perform for you, since they're only paid when they collect.
However, flat fee-based agencies are to be considered for some circumstances. If you tend to turn over a consistent number of delinquent accounts, and/or if these tend toward larger balances, you might consider a collection agency that assesses a flat fee. You will save far more money over the long term, as your total cost of collection can be mere pennies on the dollar. Since your collection costs are fixed and a known quantity, you can afford to turn over delinquent accounts sooner, rather than later. This will greatly improve the agency's recovery rate, thereby netting you more money, and sooner!
Debt Portfolio Scoring
Not many collection agencies offer this, but for those that do, this is a very beneficial service to business owners. Basically, this tool allows the collection agency to take an overall view of your debt portfolio, and with scoring software, they can predict which accounts are likely to pay and which ones will prove more difficult to collect on. This allows you to focus your resources on those accounts with the greatest potential for yielding you positive results before turning them over to a collection agency.
Because scoring can be done on a batch basis, pre- and post-default, this can yield a lot for your business. You can now know which accounts deserve more of your internal efforts, and are likely to pay you, as well as the problem accounts that should be outsourced to a collection agency.
Depending on the business, as well as the size of the debt portfolio, the cost for this service can be mere pennies.....often, even free!
Do They Belong To Professional Organizations?
Your next question should be if they are members of one of the two professional societies for collections people: The American Collectors Association or The Commercial Law League of America for commercial collection agencies. Membership in these associations indicates a commitment to professional service.
For example, both organizations require perfectly professional conduct from their members. Not only do they conform to The Fair Debt Collection Practices Act, they are committed to training courses for members to teach the latest collection techniques.
Online Account Monitoring?
You also want to pick a collection agency that will let you view your accounts online. Though you're delegating the task to them, you need to be able to keep an eye on things for your peace of mind. An agency that allows you online access to your accounts is preferable to one that does periodic reporting in the mail.
Another criteria for picking a collection agency is whether or not they do their own collections or send out files to other agencies. Those who send out files to other agencies often use offshore call centers, which are mentally easier to dismiss to debtors. In addition, whether or not the contracted third parties are offshore, you have no control over their professionalism. For this reason, you should pick an agency that does all their own collections work and you won't be sorry.
Other Important Considerations
When looking to outsource your delinquent receivables to a collection agency, be sure to ask these questions as well:
• Do they have experience in your particular industry?
• Do they mirror your business philosophy? (i.e., if you run a medical practice, will they be diplomatic when talking with your patients? You don't want to risk getting a negative reputation in the community because you've partnered with an agency known to use harsh tactics when handling patient collections)
• Do they offer the option of reporting to the credit bureaus? While some business owners may not care for this feature, many others see the added incentive this can provide in getting debtors to pay. Most people would rather not damage their credit rating. In addition to credit bureau reporting, some agencies have the ability to get "trigger" data from the credit bureaus.
For instance, a debtor may have moved to another state. If he/she attempts to rent an apartment, get utility service, start a new job, etc., this will be reported to the credit bureaus. All collection agencies aren't privy to this updated, real time information. The ones that offer this ability can have far greater recovery successes. When a debtor "gets back on their feet" financially, this information can be sent to the agency, thereby alerting them to restart the collection efforts.
• Do they offer skip tracing for debtors you can no longer reach? Are there additional fees, if any, for this service?
• Can they provide references of other business clients similar to yours?
• What kind of, and how much training do their collectors receive? Do they hire high school graduates? College graduates?
• How are their collectors paid: by the hour? Commission, based on what they collect? Its plain to see that collectors paid on commissions are more motivated to collect money, than those simply paid by the hour.
• Do they offer legal services, if and when necessary? Some cases may need to be referred for legal action. When this becomes necessary, who pays for the court filing fees and other court costs? Some agencies charge their clients additional monies for this service, if they offer it at all. Others pay for it themselves.
Finally, make sure your collection agency has staff working outside of standard business hours in order to maximize your collections efforts. If you have collections all over the country it's better to hire an agency with offices nationwide in order to deal with disparate time zones. Even if all of your collections are local, make sure the collection agency has some people who work early and some who work late, because collections calls outside of the 9-5 time frame are usually more successful.
When it comes time to choose the best collection agency for your business, the consultants at DebtCollectionSteps.com have the wealth of experience to help you make the right choice. We can help you navigate all the various options available, giving you advantages and disadvantages for the different types of agencies out there.
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