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Net Back is the Most Important Thing in Collection Measurements

September 22, 2010

There are many factors to consider when selecting a collection agency or attempting to evaluate current agencies. I would make the point that the most important factor is net back dollars. (This is assuming that the agency is acting in an ethical manner, treating your customers well and follows all state and federal laws; those factors are a must.)

Too many times you see Requests for Proposals or Invitations to Bid and the agency selection criteria is heavily weighted to cost. While this is understandable reasoning, it often results in less money to the bottom line of your organization. Net Back Dollars is THE most important financial criteria to look at in evaluating agencies. Net Back Dollars is defined as the amount of money that is returned to the Client/Creditor after the agency takes its fee.

Agencies are good at quoting low rates to get business and then cutting corners to make a profit. One thing we must remember is that there are no nonprofit collection agencies that I am aware of unless they are owned by a health system. So when an Agency is awarded this business at too low a rate, they must figure out a way to make a profit. It could include completely ignoring certain segments of accounts, high collector to account ratios, high collector to management ratios, raising the dollar amount threshold for skip tracing or calling the account, placing trainees on your accounts. None of these actions will benefit their customers. These are just a few examples of what can happen, and agencies will not tell you when they are doing these things. It isn’t that they aren’t being honest; they are just giving you what you have asked for, which is substandard recovery.

Consider this to give some perspective on what this can mean to your bottom line:

  • An Agency charging 20% and getting 10% recovery is the baseline in this example.
  • You may feel that if you can get an agency at 15% and come close to the 10% recovery would be a good deal, right? Wrong, you have just cost your company’s bottom line 93K for the year.
  • Even a slightly less rate and recovery is costing money to your bottom line. Being fair and paying your Agency’s enough rate to warrant full effort when working your accounts will maximize recovery and your bottom line

So next time you are evaluating your current agencies or looking for new ones, consider net back as the most important criteria, other than compliance. Evaluate Agencies with this in mind and judge your current agencies on net back, rather than the overall percentage of recovery. If you are ignoring net back it could cost you more than just money to your bottom line.

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