The future of credit management

How to Choose the Right Collection Agency?

How to make the right choice when it comes to selecting a third party agency. This article was first posted in November 2007. Whilst we feel it’s important to consider the points listed below, we would strongly recommend you meet the staff that will be handling your accounts. Would you employ them? Will they represent your company as you would like?

Choosing a collection agency to use as an extention to your own ‘in-house’ credit control department can be difficult. It’s hard to predict an agency’s success with delinquent accounts ahead of time. Here are a few areas to look into and consider:

Their experience within your industry

Your business may require unusual collection tactics that some agencies may be more familiar with than others. Government, student loans, and medical accounts are examples of when specific expertise is important. It’s vital that the agency you use truly understands you particular receivable. Question and challenge them. Meet the folks that will be calling your customers. Are they people you would employ? It’s important that you have confidence and trust in the agency you use.

The reputation of the firm

Make sure to check a collection agent’s references, particularly from clients that are in a similar business to you. Call the references and ask their opinion of the collection services, if they have had any problems, and what their typical success rate is. What about the key people? Check out the directors and managers, who are they and do they have a good reputation within their industry. What qualifications to the managers have? ICM, FICM etc. Do your homework, it will pay dividens.

Check out their references

We would recommend you speak directly to a few of the customers of the agency and in particular, speak with customers in the same business sector as you. You’ll learn a lot from this excercise.

Their methods of collection activities

Examine the letters that will be used and judge whether they will be effective with your customer base. Also ask about the training their telephone collectors receive to ensure their methods are professional and respectful, and find out how they handle legitimate excuses or hardship cases.

How they handle skip tracing and location

“Skip tracing” refers to how the collection agent finds debtors who have disappeared and can no longer be directly contacted. This is particularly important when collecting from individuals. Agencies should have access to online search capabilities and telephone databases to help locate these debtors.

Does your agency access the latest business credit information?

It’s important for your agency to be able to adapt their collection strategy to the particular credit dymamics of your customer. Their liquidity, solvency and legal structure should all be factors in the planning of the best collection approach.

What geographic coverage they have

Ask the agency what countries they are able to collect in, and how they handle accounts in those locations. Do they have a physical presence or are they using a strategic partner? Often, agencies forward accounts from outside their coverage areas to other agencies, which can save you the time from choosing and overseas agent. Also, do they themselves have on-line access to the partners they use? What checks have they made in selecting their partners?

Licencing & Insurance

Check the agency has the relevant licences to do collections work in the various locations you are interested in. Data protection, Consumer Credit Agency licence, FDCPA etc.

An Errors and Omissions Liability insurance policy can benefit both you and your collection agent by protecting against lawsuits unhappy debtors might file for perceived harassment. An up-to-date policy can be a sign of a collection service that is responsible and conscientious.

Why not play ‘champion & challenger’?

Usually collection agencies don’t require long-term contracts or exclusivity. Unless you are involved in a receivables management outsource program. Try a few different vendors and see which produces the best results before settling on one firm. Even after you have chosen a primary collection agency, it can be worthwhile to send a few delinquent accounts to a different agency just to compare ongoing performance.