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How to Select a Collection Agency

August 11, 2010

Sooner or later within your company’s customer base, someone – whether a long time customer or a new client – is not going to pay a bill. Driven by the challenging economy, more businesses are turning to professional collection agencies to address increases in delinquencies. In 15+ years of dealing with delinquent accounts and receivables management, we’ve found that choosing the right collection agency (which is often not the lowest bidder) is a crucial decision that can improve your bottom line. However, to protect your company’s reputation and finances, you must do your due diligence when selecting an agency. Here are five things to consider when choosing and hiring a collection agency:

Reputation – You do not want to be associated with shady collections practices. While the agency may face the consequences if they are not compliant, your name may be tied to their violation. There is no such thing as an agency that never receives a complaint. The real question is; do they have adequate systems for working within all state and federal regulations and minimizing complaints?

Check to see if the agency is a member of any recognized trade associations, such as ACA International or the IACC, whose members are held to high ethical and professional standards. Also, ask if the agency has any quality control certifications such as PPMS?

Recovery rate – Inquire on the agency’s recovery rate, not just fees charged. For example, if you turn over $5,000 worth of accounts at a 25% commission rate and the agency recovers $1,000, you will receive $750. If you turn over the same $5,000 at a 35% commission rate, but the agency recovers $1,500, you will receive $975.

Even though the agency’s fee is 10% higher in the second example, the net back to you would still be substantially more, due to the better performance of the agency. The agency fee rate by itself is meaningless. Net return is the key.

Industry experience – How many years has the agency been in business? Do they have experience working with your specific type of accounts or customers and the rules and regulations that may apply to your industry?

Technology & Data Security – Remember that a collection agency will store your company (and customers’) information within its data systems. You need to be sure their technology infrastructure is safe and secure. Inquire into security certifications showing they are compliant.

References – An obvious point that often gets overlooked is checking references, mainly from clients in your industry. Dig in and make some calls to their current or previous customers. Ask about the quality of their services and professionalism. Did they have any problems?

If you have experienced increased delinquencies and your core competency is not chasing after delinquent customers, then you most likely need a collection agency. Hiring a quality collection agency is not often easy. Search for a business partner, not just a collection agency. Your ultimate goal is not only to secure debt but to maintain and protect your value in the marketplace.

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