Collection Agencies And Other 3rd Party Options 3 of 6

By Dean Kaplan+

Collection agencies need accurate information to collect

Collection agencies require accurate and up-to-date information in order to collect successfully

Once a credit department has decided to hire collection agencies, it is important to understand the way agencies work to make sure the best debt collection results are achieved. This is the third article in a six part series about third party debt collection options available to credit departments. This article will focus on understanding the way collection agencies operate and what credit departments can do to help maximize results.

Once a collection agency is hired, the credit department will begin to turn delinquent accounts over to the agency. For the agency to be successful, the credit department must provide the most up-to-date, accurate information to the agency. This information should always include:

• A summary of all the delinquent invoices associated with the debtor
• Photocopies of all individual invoices, purchase orders, contracts, proofs of delivery, etc.
• Photocopies of all checks remitted to-date by the debtor.
• Photocopies of all written correspondence between the credit department and the debtor relating to unfilled orders, claims of shortages, breakage, non-conformity, or returns.
• Photocopies of any personal or corporate guarantees.
• Accurate phone numbers, e-mail addresses and contact persons relating to the debt.

The more background and accurate contact information you turn over to the collection agency, the better. If down the road, a lawsuit has to be filed, all of this background information will be needed. Therefore, it is always a good idea to put it together in the account package when you initially pass it on to the collection agency. When putting together the account package, you will also determine if you are missing any of the information, and you will have the time to locate it.

Once the account has been turned over to the collection agency, do not attempt to keep your finger in the collection process. Let the agency do its job. Cease all communication with your customer while the agency is pursuing payment. Frequently, once a debtor has been contacted by a debt collector, the debtor may attempt to contact you to negotiate a settlement. The debtor may become aggressive and threaten a countersuit or removal of all future business with your company. In this situation, the best thing is to remain firm, and refer them back to the collection agency.

If the agency has pursued the payment and the customer sends a check to your company rather than directly to the agency, turn the check over to the agency so that they can determine if the amount is the amount agreed upon by the agency and the debtor. In some cases, the amount may not be the correct amount, a replacement check will be required, or the check may not clear the bank. In all these instances, the agency will know the best course of action to take.

When you turn an account over to the agency, the credit department should have a plan in mind if the agency is unable to collect the amount owed. If you plan to pursue a legal suit, understand that the costs associated with collecting the debt will go up, and the time it takes to collect will also increase, possibly a lot. It is not unusual to find out that civil courts in some states are backed up for months and months. Remember that while you are waiting for a case to go to court, the debtor may go out of business or file for bankruptcy. In addition, the debtor’s attorney will use delaying tactics and try to put as many roadblocks in your way as possible. Dragging the suit out is a key strategy in these cases.

In the end, when deciding whether or not to take legal action against a debtor, the debt amount must be significant enough to warrant the costs involved in pursuing payment and the case must be deemed winnable. Finally, even if the case is won, you still have to collect the debt. If you don’t believe the debtor will ever pay, then it is probably better to just write off the debt.

Sometimes credit departments turn an account over to a collection agency because of a dispute with the customer. More often, however, turning an account over to a collection agency is indicative of potentially serious problems occurring with the customer’s business. It might be time to reevaluate the future credit extended to the customer, and definitely let the agency pursue outstanding payments sooner than later.

Click here if you are ready to go on to the next article in the series Collection Agencies And Other 3rd Party Options 4 of 6. Click here if you missed the previous articles, starting with  Collection Agencies And Other 3rd Party Options: In Court.

The Kaplan Group is a boutique collection agency specializing in large (over $10,000) debt collections due from businesses. Founded in 1991, the company has a stellar reputation (A+ rating with the Better Business Bureau) and is recognized as one of the leading collection agencies for results on large and complex matters.