Collection Agencies & Other 3rd Party Options: Agencies
By Dean Kaplan+
When a credit department is unable to collect its accounts receivable debt, it may be time to hire collection agencies. Agencies are accounts receivable collections professionals and know the most successful collection techniques. Professional debt collectors spend all day everyday working claims and frequently have a much higher success rate than in-house debt collectors. This is the second of a six part series of articles about third party collection options available to credit departments. This article will focus on how to choose a commercial collection agency.
As in any service industry, there are high quality agencies, and there are disreputable agencies. The key is to figure out which kind of agency you are hiring, before you actually begin the working relationship. When dealing with business-to-business debt collections, the correct agency to hire is a commercial collection agency. A commercial collection agency does not deal with consumer debt. It only deals with collections involving one business not paying another business. A commercial collection agency does not have to abide by the laws that pertain to consumers (e.g., the Fair Debt Collection Practices Act). Quality agencies are fully up to date on all laws pertaining to commercial collections.
As you begin the process of selecting your agency, you must take the time to research and investigate all candidates. Watch out for any agency that promises commissions or rates which you know are significantly lower than the industry average. Other red flags include promises of kickbacks or over-the-top collection results.
As you evaluate your collection agency candidates, put as much effort into understanding each agency and its skill-set, rates and reputation as you do when making credit decisions for new customers. Hiring an agency is a very important decision and warrants scrutiny. Below are some steps to take when evaluating agencies:
• Only evaluate commercial collection agencies. These agencies will know the ins and outs of business-to-business debt collections.
• When evaluating a very large national agency, request references for other companies they work with from your industry.
• Make contact with the references within your industry. Ask questions about the agency’s collection success rate. Determine how quickly collected monies are turned over to the client. Ask about status reports and the general flow and timeliness of information back and forth.
• When evaluating local or regional agencies, the same process applies. Ask for and call references, preferably within your industry. Confirm all bonding insurance coverage and claim history.
• Use your industry network to find out what agencies other credit departments use and like. Some agencies specialize in particular industries. These agencies can be particularly successful because they have even more knowledge of how to motivate debtors within the specific industry.
• Check to see if the agency offers any other services such as legal counsel. Some agencies have their own attorneys which they can use to further motivate slow- or no-pay customers. Sometimes debtors will pay after just receiving a letter from an attorney. Others will need to be sued, and agency debt collection attorneys are very knowledgeable and know the most efficient, expedient ways to file suit.
The bottom line is to do your homework when you decide to hire a collection agency. The better you understand the agency’s debt collection process, the more likely the agency will deliver positive collection results. One last word of warning: Don’t wait too long before you turn over claims to a collection agency. The more past due the invoice is, the lower the probability of collection. Even the highest quality agency can’t perform miracles with long past due debt.
Click here if you are ready to go on to the next article in this series Collection Agencies And Other 3rd Party Options 3 of 6. Click here if you missed the previous article 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.