Hiring a debt collection agency is one of the best decisions you can make as a business owner.
But if you’ve never worked with a collection agency before, you probably don’t know what to expect and what features to look for.
First and foremost, when you’re hiring a debt collection agency you need to think carefully about the type of relationship you want.
It’s extremely important that the agency you choose can work with your team in a way that will meet your needs.
Every debt collection firm is different – some firms specialize in specific industries or types of debt.
Despite the differences, there are some basic things every collection agency should have in common.
Here’s what to look for when hiring a debt collection agency
When hiring a debt collection agency, look for the following features:
1. Regular status updates
Before you even start working with another company, you need to clearly communicate your team’s wants and needs.
Your collection agency should have a team of experts that will meet with you on a regular basis to review your accounts and provide insight.
Additionally, the collection team should be in regular communication with you, whether over the phone or in person.
You should also be provided with regular reports, such as status reports, recovery analysis reports (which provides information based on the age of the accounts) and a remittance statement of payments received each month.
2. 24/7 access to your accounts
Even when you’re not in direct communication with your collection agency, you should be able to check on the accounts you placed for collection.
Ensure that your collection agency offers 24/7 access to your accounts so you can check up on them whenever you want.
3. Skip tracing department
The best collection agencies use an advanced tactic called “skip tracing.”
Skip tracing is the process of locating a debtor that who has “skipped” or left town, hence the name “skip tracing.”
This is especially helpful for cases in which the debtor hasn’t answered or returned repeated calls, emails and letters.
“We utilize everything from electronic data scrubbing and data cleaning, right down to good, old-fashioned detective work on an individual case-by-case basis where it’s needed,” said McGloon.
The next time one of your customers seems to disappear into thin air, consider using skip tracing services to track them down.
4. Partner law firm
There are a few collection agencies that will partner with a local law firm in order to collect a debt.
The law firm will send a letter to the debtor demanding payment and if necessary, the law firm can then begin the litigation process.
5. Proven expertise
The collection agency you choose should have complete expertise in your industry.
If collections pertain to insurance product lines, you want a company that knows the ins and outs of insurance and can explain in detail to your former customer how the balance was generated.
It serves no purpose for you to simply have them call and demand payment. It is important that your collection agency is capable of explaining the amount due and educating your customer.
In short, collection agencies should uphold the same business standards as you do when representing your company policies without alienating your customers.
6. Sufficient licensure and compliance
Right now, there are over 8,000 collection agencies operating in the U.S.
Out of those 8,000 agencies, the overwhelming majority are not licensed to conduct business in all 50 states.
Lack of sufficient licensure not only severely impedes collection results and efforts, but it makes your customers’ personal information vulnerable to hackers and data breaches.
Certifications to look for:
- PCI/DSS Compliance
- SSAE Completion
- HIPAA Compliance
- Collection License in All 50 States
If a debtor or their attorney discovers that an agency is not licensed, a grievance complaint could be filed or you could be sued.
Remember: you get what you pay for
The truth of the matter is that when you are selecting a collection agency, you get what you pay for. When an agency offers a low contingency fee, there is a reason. Anyone in business knows that there is a cost to doing business.
So if an agency has a low fee, it means that they have to cut corners on their operating costs somewhere.
For example, it may be that instead of skip tracing to find a good phone number, they close your file as noncollectable when they reach a phone number that is disconnected.
On the flip side, you don’t want an agency that will price gouge you and not perform to your expectations. You want a fair price and the agency to perform their due diligence.
If you send the agency 100 accounts, their rate of recovery on those accounts should give you a clear indication as to their due diligence, which could dictate the price.
Try this: Look at the returns you’ve seen previously and give them your expectation for the percentage of files you expect them to recover at a regular rate.
If they exceed your expectations, offer a bonus. If the collection agency you are talking to hesitates on the idea of a potential bonus for your recovery rate benchmark, don’t think twice, keep looking for another agency.
Make the right choice
Hiring a debt collection agency to collect on unpaid accounts is one of the best ways to increase cash flow and reduce company debt.
And since collection agencies specialize in credit management, they can provide valuable advice and support on how to improve your cash flow.
Letting a collection agency manage debt will allow a struggling company’s employees to focus on core business activities, instead of trying to manage debt collection efforts.
If your company is struggling with unpaid accounts, give us a call and we’ll see how we can help.
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