Nine Guidelines for Selecting the Right Collection AgencyEvery business, big or small, will eventually have a collection issue. Despite your best efforts, some accounts will fall past due. Some customers simply will not pay. And, like a rusted bolt, they're just not going to budge. So you reach out for a tool with added torque to get things moving – an outside collection agency (OCA).
The Commercial Law League of America (CLLA) suggests that accounts be placed with a collection agency at 90 days past due. The recommendations of the Credit Research Foundation are not so specific: “When the marginal cost of collection exceeds the marginal benefit, it is time to employ a third party method of collection.” Both associations, however, recognize the value of forwarding past due accounts to a reputable OCA for handling.
So, when it’s time to call in outside help, how do you select the right partner from among the thousands of collection agencies in the United States, let alone worldwide?
Choosing a reputable firm is important. But there's much more than reputation to think about. You need a firm that fits your corporate culture and provides the kind of relationship you consider important. One that understands your expectations and will partner with you to help you meet your goals.
Focusing on these nine areas will help you select the right collection agency for your company.
1. Your Customer Base
2. Size and Location
3. Integrity and Standards
Here are some guidelines:
- If you’re selecting a consumer agency: Are they members of the American Collectors Association? Do they adhere to the rules of the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act? Are they licensed and bonded in all 50 states?
- If you need a commercial (business-to-business) agency: Are they members of the Commercial Collection Agencies of America (CCA of A) or the Commercial Law League of America (CLLA)/Inernational Association of Commercial Collectors (IACC)? These are the primary independent bodies regulating the commercial collection industry. Certification ensures that the agency adheres to a strict code of ethics and generally accepted accounting principles, and is bonded. Certification is reviewed on an annual basis.
- Call the Better Business Bureau where the agency is located. Check to make sure there haven’t been any complaints against the agency to which it hasn't responded appropriately and attempted to resolve.
4. Legal and Financial Position
Check into their accounting practices. Do they maintain a separate account where monies from collections are held until remitted to you, the client? These are called "trust accounts," and are required to obtain the certifications mentioned above.
Many states require collection agencies to be licensed in order to collect within those states. Practically every state requires consumer agencies to be licensed; a number also require licensing for commercial agencies. Be sure that your agency of choice is licensed where necessary, and especially in the states where your debtors reside. They should also be adequately insured and bonded, as required by law.
6. Industry Specialization
8. Fee Structure
Many collection agencies also offer some sort of free final demand service. Under this agreement, no fees are due the agency if the debtor pays within in a specified (often 10 days) period of time. The standard for remitting collected monies back to the creditor is generally remit “net”, meaning the agency takes their and any attorney fees from the amount collected and forwards the balance to the creditor.
If you're only placing a small number of accounts with the agency, you may not be able to negotiate any special rates. The standard fee schedules for most firms are very similar. Some firms, however, increase their rate based on the age at placement. Or, they may require an upfront placement fee for old accounts. If you have a very old (more than 12 months past-due) account, you may want to look for an agency that does not adjust its fee based on the age of the claim.
The good news is the collection industry is very competitive. So if you'll be placing large dollar amounts or a significant number of accounts, you'll have a lot of leverage. You should be able to negotiate a flat fee, at least for in-house collections, and require the agency to remit “gross”. However, in collections, as elsewhere, you get what you pay for. So don’t take the lowest quote without a clear understanding of how the accounts will be handled. Collection firms are in business to make money, just like you are. The firm with the lowest fee may not provide the quality of service required, or meet your handling requirements.
9. Value Addition
Information is Power
A final word: seek a partner – not just a vendor. You want a firm that not only gives you good value for your money, but also complements your culture and adds value to your relationship.