Every company, regardless of size, will ultimately experience a collection problem. Your best efforts won't prevent some accounts from becoming past due. Some clients simply refuse to pay. And they simply won't move, like a rusted bolt. So, in order to get things moving, you reach for a tool with more torque: an outside collecting agency (OCA).
The faster a past-due account is turned over to a commercial debt collection agency, the better the odds are for a complete recovery, according to the Commercial Collections Agencies of America (CCA of A). According to the Credit Research Foundation's (CRF) instructions, the client invoice is where collection "truly starts." They advise quick invoicing but advise taking a number of things into account when it comes to collections. However, both organizations understand the benefit of sending past-due accounts to a reliable OCA for management.
How can you choose the best partner from among the thousands of collection agencies in the United States, let alone around the world, when it's time to enlist external outsourcing assistance?
It's crucial to pick a reliable company. But there are many other factors to consider than reputation. You require a company that complements your corporate culture and offers the kind of relationship you value highly. One who is aware of your needs and is willing to work with you to achieve your objectives.
Focusing on these nine areas will help you select the right commercial debt collection agency for your company.
1. Your Customer Base
Are your customers, consumers, other businesses, or both? The collection agency you choose should have experience working with your target market. A commercial collection agency for business-to-business (B2B) clients; a consumer agency for individual or consumer claims. If your portfolio is mixed, you might want to divide it. In this manner, you'll be able to make the best use possible of your collecting partners' experience. Finding a business with substantial experience in both consumer and commercial collections or one with experience in your company's sector is another possibility.
2. Size and Location
Small local organizations to substantial global corporations make up the spectrum of collection agencies. No one size fits everyone. Your OCA's scope and scale should be comparable to that of your business. A small collection provider with strong local connections will be able to manage your accounts successfully if you run a small business that offers products or services in your city or area. Conversely, if you sell domestically or globally, search for an agency with relationships and industry knowledge both within the United States and in the nations where you conduct business.
3. Integrity and Standards
Choose a commercial debt collection agency that values integrity and complies with high standards of customer relations if you want to keep doing business with your customer after the bad debt is paid off. Your company will be directly impacted by how the outsourced debt collection agency treats your consumer during the collections process. A company that has a bad reputation for using unethical collection tactics and treating consumers impolitely quickly gains popularity. Unfortunately, they might not only harm your relationships with present customers in the future but also lose you new clients.
For your collection agency to treat your clients professionally, follow these rules:
Check to determine if the Commercial Collection Agencies of America (CCA of A), International Association of Commercial Collectors (IACC), or Commercial Law League of America are members if you need a commercial (business-to-business) agency (CLLA). These are the prominent independent organizations in charge of overseeing the commercial collecting sector. By being certified, an organization can demonstrate that it is bonded, abides by a robust code of ethics, and uses generally accepted accounting methods. Every year, certification is examined.
Find out if the consumer agency you are considering is a member of the American Collectors Association. Verify their compliance with the Fair Debt Collection Practices Act and the Fair Credit Reporting Act, as well as their 50-state licensing and bonding.
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
Strength isn't always correlated with size. Smaller to mid-sized organizations may be more financially secure than a BPO or a big, publicly traded company. Examine the agency's finances to see if there are any problems that would prevent it from paying you once it has been collected.
Analyze their accounting procedures. Do they keep a different account in which money from collections is kept until it is transferred to you, the client? These are referred to as "trust accounts," and they are necessary to secure the aforementioned agency certifications.
Several states require collection agencies to hold a license to collect within a state. Almost all states require licensure for consumer agencies, and some also do so for business agencies. Make that your chosen agency has the appropriate licenses where applicable, particularly in the states where your debtors reside. As needed by law, they should also be adequately insured and bonded.
Visit the CCA of A's page on the certification procedure for commercial collection agencies for additional details.
5. Experience
How long has the company been in operation? How much collection experience do the executives and managers of the organization have? How about the collectors—are they recognized by a separate organization? How frequently do collectors change? These inquiries are essential for figuring out whether the business has the necessary experience to manage your most valuable asset, your clients, in an efficient manner.
6. Industry Specialization
Across industries, the collection procedure is essentially the same. The cost of collecting from an importer versus a distributor or merchant is not much different. There are, however, unique regulatory requirements in some sectors, including the media, healthcare, and telecommunications. Collectors who operate in these sectors must be skilled at applying these regulations to the management of their past-due accounts. Additionally, a substantial set of federal and state laws applies to consumer collection. Find a commercial debt collection agency with the necessary expertise and experience if your industry or clientele is subject to any rules and regulations.
7. Technology
You should anticipate that your agency will provide some form of online access that enables you to see the status of your accounts, communicate with their collectors, and potentially even run statistical studies on your collection portfolio, given the degree and accessibility of technology today. This might not be a big deal if you only file a few claims each year as long as the collectors keep you informed about the progress of every account. However, if you have hundreds or thousands of accounts, you should absolutely work with a company that makes it simple to access this data online. Ad hoc report customization should also be taken into consideration.
8. Fee Structure
Around the world, collections often follow a contingent fee system (i.e., no collection, no fee). Additionally, most collection agencies employ a tier system. The value of the account, or the size of the collection portfolio, the amount collected, and the type of handling—in-house, attorney-amicable, or lawsuit—required to collect have historically been the factors used to determine costs. The location of the debtor, the type of placement, and the age of the account at the time of placement are some other variables that may be considered to determine rates (manual or automated).
Many collection companies also provide a free final demand service of some kind. In accordance with this agreement, if the debtor pays within a predetermined (typically 10-day) window of time, no costs are owed to the agency. The norm for returning money that has been collected to the creditor is to remit it "net," which means that the agency deducts its own costs and any legal fees from the money that has been recovered before sending the remaining sum to the creditor.
You might not be able to negotiate any special rates if you simply place a few accounts with the agency. The majority of businesses have relatively comparable basic fee structures. However, some businesses base their rate rise on the candidate's age at placement. For older accounts, they might also demand a placement fee ahead. 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 fees based on the age of the claim.
The good news is that the collecting business is quite cutthroat. Therefore, you'll have a lot of leverage if you want to place substantial sums of money or a sizable number of accounts. At the very least, for in-house collections, you should be able to negotiate a flat cost. However, just like anywhere else, you get what you pay for in collections. So, if you're not sure how the accounts will be handled, don't accept the lowest quote. Just like you, commercial collection agencies are in business to make money. The company with the lowest charge might not offer the necessary level of service or satisfy your handling needs.
9. Value Addition
Don't be too quick to dismiss the extras that certain collection agencies offer, such as training courses, informative publications, free webinars, etc., even though they may not seem very significant. This "value adds" frequently reveal an agency's knowledge, dedication, and drive to offer their clients high-quality services.
Information is Power
You will be able to create a strong functioning profile of an outside collecting agency that is suitable for you by investigating these nine crucial aspects. Additionally, you'll be able to compare the qualifications of the numerous outsourced collection agencies on offer and make an educated decision.
One more thing: look for a partner, not simply a vendor. You need a commercial debt collection agency that will provide you with fantastic value for your money and fit in with your culture and improve your relationship.
