Hiring a collection agency can be a great move to not only bring cash back into your company, but also to free up time you are spending chasing delinquent customers. Your choice of agency should be based on a number of factors. It is important to find an agency that works best for your business. To help with your search, here are some DO’s and DONT’s.
DO make certain your agency has the proper credentials. Check to make sure they are a valid business. If your customers are consumers, make sure the agency has the proper licensing and bond requirements. Some states require consumer collection licenses and surety bonds, while others do not. The Association of Collections and Credit Professionals (ACA International) is a good place to look for guidance. There are various listings of various state requirements. Collection of commercial i.e., business to business) does not require a specific license, but again, make sure they are a real business in good standing.
DO interview several collection agencies in your area. Inquire about their experience in your field. Ask them to explain their process and why they believe they would be the best choice for your business.
DO ask for several references and verify them.
DON’T select and agency solely on the basis of the lowest rate. Keep in mind the acronym, “TGTBT”, too good to be true, and what that usually means. Some agencies will sell a low per file fee or low contingency rate for which they will send one letter. If the first letter doesn’t work (which most do not), you will be asked to pay a much higher rate.
DON’T think that just because your collection agency charges you a contingency rate (nothing up front, with a percentage paid only on successful collections), that their services are free. Once you place a file for collection, get out of the way and let the agency do their job)
DON’T ever pay extra fees for research. Research (called “skiptracing” in the collection industry) is a critical part of the process and should be included in your contingency rate.
DO ask your collection agency what types of information they need from you. Also, after hiring a collection agency, pass on to them any new information you discover.
Hiring a collection agency should be done with the same care you would take hiring any vendor. Do it right and the results will follow.