Debt Recovery

A Collection Agency is your business partner. The criteria for shortlisting them cannot be the same as shortlisting a plumber.  

Collection agencies are well aware of the Contingency Fees of their competitors. Agencies that charge a higher Contingency Fee than their competitors are not foolish. There is a solid reason why their fees are higher than others. Agencies that charge higher usually go to great lengths to recover your money.

It is more important how much more a collection agency recover and not how much they charge. Good debt collectors are in high demand and will not settle for a smaller paycheck. 

An agency accepting to collect at rock bottom Contingency Fees is probably not devoting enough resources or not engaging the best debt collectors. Quite likely, the recovery rates of such agencies are lower. Agencies using inferior-quality of debt collectors are a risk to the reputation of their clients.

Collection Agencies have high overhead costs:

• Employing experienced and top-of-the-line debt collectors is expensive. Individuals who make these collection calls (Debt collectors) are commission-based contractors. They get a small percentage of what they collect. If the agency’s Contingency Fee is too low, then the income of their debt collectors also goes down significantly.
• To maintain proper supervision and to provide a professional workspace for the debt collectors and support staff, adequate equipment and USA-based infrastructure are highly desirable. For Example: Do you want low-wage debt collectors who work from home or those located in a foreign country to handle your accounts?
• To regularly train Debt Collectors on the latest changes in Federal and State laws and ensure they do not violate debt collection laws is extremely important and that, of course, has its financial overheads.
• Handling data securely and performing annual security audits are not cheap. You will be sharing a lot of personal data of your customers with them. Can you imagine the liability if your company is sued in case your customer’s data was stolen from the premises of a 3rd party collection agency?
• Subscription to various services and tools required for effective debt collections is not cheap (For example:  Advanced skip tracing service, not just a Basic skip tracing for the namesake).
• To be licensed, bonded, and insured against possible counter-lawsuits is important and costs money.
• Providing a customer-facing portal to submit and monitor accounts, run performance reports and upload documents securely results in IT costs too.

Hiring a collection agency just because it offers rock-bottom collection fees without investigating further can be costly. You often get what you pay for.

Optimum collection fees.

This is what we believe are the optimum contingency collection fees.

For Consumer Collections ( B2C Collections)

• Over 50% Contingency Fee is unacceptable and too high. Regardless of the returns. Unless the debt is more than 2 years old, it is very hard to collect.
• 50% is slightly on the higher side.
• Between 45% and 50% is considered acceptable.
• Between 35% to 45% is typically considered an optimum contingency rate for a good collection agency.
• Below 35% may be too low unless the balance is over $5,000. Find out more.

Let us dig a little further.

• A 40% contingency rate is optimal if your average balance is between $100 to $1000
• A 35% contingency rate is optimal for balances between $1000 to $5000
• Less than 35%  contingency rate is fine for balances between $5000 to $20000
• The contingency rate will generally be higher for accounts over 1 year old (by about 5-10%). This is because older accounts are hard to collect.

How Performance wins over Fees

Let us do some simple mathematics. Say you have to assign a debt of $10,000 to a Collection Agency. You have two options – “Agency-A” and “Agency-B”

Agency-A
This agency charges a 40% contingency fee and eventually recovers 50% amount (Recovers $5000). This means you are issued a check of $3,000 after 40% fees.

Agency-B
This agency charges a rock bottom 25% contingency fee and recovers 30% amount (Recovers $3000). This means you are issued a check of $2,250 after 25% fees.

Performance wins: Anybody would select Agency-A

Let me repeat

Collection agencies are well aware of the Contingency Fees of their competitors. They are not foolish to keep higher contingency fees than their competitors without a solid reason.

Find it out before you shortlist. I am not saying that all agencies with low contingency fees are bad or under-equipped or vice-versa, but do find out more. Make a mindful selection.

For Commercial Collections: (B2B)
Due to higher balances, contingency fees are between 15% to 35%. A collection agency will give you a quotation depending on the balance, age of the account and complexity of the case. There is no fixed fees.

Is your company constantly losing money due to overdue accounts receivable? Several delinquent accounts have remained uncollectable despite your best efforts or even when you followed all your company-recommended procedures and policies.

Did you notice that 90% of the accounts which become over 90 days past due never get resolved?
Unless forwarded to a professional collection company, these accounts are subsequently written off as a complete loss.

Furthermore, chasing customers to clear their bills wastes too much time. This keeps your team members away from the core business responsibilities they were hired for.

Why should your company hire a professional collection agency?

We have prepared a list of “Frequently Asked Questions” that will help you genuinely address your concerns and also help you design a strong case for your company’s senior management.

1. What is the expense involved in hiring a collection agency?

>> None – Accounts can be submitted for contingency collections. Therefore there are no upfront costs. A collection agency returns 60% of the money recovered and keeps 40%.  Many collection agencies offer flat-fee services too, starting at $15 per account.

For commercial collections (B2B), contingency rates are lower. Collection agencies also offer first-party pre-collection services if your staff hardly gets time to follow up on delinquent accounts.

2. Which accounts would you transfer for collections?

>> Only those accounts that have not paid for more than 60 days should be transferred. In other words, you have given them at least two billing cycles to pay directly to you.

3. Any other financial benefit to the company?

>> Many. Almost 90% of these accounts over 90 days past due are written off as a loss. The effort and cost involved in following up offsets the recovery made on them. In short, our company is not gaining anything by following up on accounts over 90 days.

On the other hand, money recovered by a collection agency will be 100% profit for the company.

4. Would you need more people to follow up with a collection agency?

>> Not at all.  Employees will have more time in hand as they won’t have to waste time on these hard-to-collect accounts. Only 1-2 existing employees would spend 15-30 minutes daily submitting past-due accounts on the collections agency website.

In-house employees hate doing debt collections anyway. It will also alleviate the pressures on your billing department. 

5. Why can’t you do the same thing internally?

>> No, you cannot replicate what professional collection agencies can do. Collection agencies have advanced tools that assist in collecting money from hard-to-collect accounts.
They do Skip Tracing to locate missing debtors.
They also perform Bankruptcy checks and several other checks that assist in recovering money.
They do debt collections every day and can handle collections efficiently and effectively.
Collection agencies are also aware of the ever-changing Federal and local laws involved in debt collection.

6. Is there any security risk if you hire a collection agency?

>> Accounts are submitted using a secure website.

The agency will additionally provide security certifications to ensure the data is handled securely. Collection agencies are licensed, bonded, insured, and diplomatically perform collections. This dramatically reduces the company’s own risk against potential lawsuits.

7. 40% contingency fee. Should you look for a cheaper agency?

>> 40% is a reasonable fee in the collections industry. All “good” collection agencies charge between 40%-50%. Moreover, if your average balance is over $1000, the contingency rate can be lowered to around 35%. Hiring a collection agency with better returns is more important than going for the cheapest. Lower-cost agencies do not spend enough time and tools required for higher returns. 

8. How long will it take to set up?

>> Just one business day after the contract with the agency is signed, another 1-2 days to train in-house employees to get used to the process. You will be up and running in less than 3-4 days. 

9. Why should you move fast?

>> The success rate of collecting from older accounts reduces significantly over time. The probability of collecting money falls about 10% every month. By waiting, our company is only losing money.

10. Would it upset our customers?

>> Chances are low. The Fair Debt Collection Practices Act (FDCPA) is the primary federal law that governs debt collection practices. The FDCPA prohibits debt collection companies from using abusive, unfair, or deceptive practices to collect debts from debtors. All collection efforts are made diplomatically with the intent to preserve relationships.

A collection agency will also try to build a positive relationship with your customer, which will help prevent non-payment issues from reoccurring in the future.

11. Why would a client pay a collection agency versus when you ask them to pay you directly?

>> That’s indeed a fact. People are much more fearful/concerned when a collection agency is involved. They know that a collection agency will not back off quickly. For reasons beyond the scope of this article, a simple fact is that people indeed dig their pockets deeper to pay off a collection agency.

12. Which agency should you select? With Local or National presence?

>> The location of a collection agency does not matter, but they should be licensed in your state and where your debtors reside. A collection agency with a nationwide presence should be preferred. If a debtor crosses state lines, you won’t have to look for a new agency to pursue that debt.

13. Do they keep your money collected in a Trust Account:
Always select a collection company that deposits all money collected for creditors in a separate bank Trust Account.

Fill out our “Contact us“, and we will simplify this process.

Conclusion:

Companies do not even realize that they often spend “more money” trying to collect. This is primarily due to the lost time of employees, resources, and many other hidden costs.

If you feel transferring an account to a professional debt collection agency after 60-90 days is cost-effective for your organization, you are 100% right. Collection agencies have been around for decades, and every year they recover billions of dollars for organizations like yours, which cannot collect money from those hard-to-deal-with customers.

It is common for organizations to focus only on getting new customers and mostly ignore their past-due accounts. Engaging an outside organization for debt collection requires approval from upper management, CEO, CFO, or business owner. The concept of transferring accounts to a collection company is prevalent. Even Fortune 500 companies hire a collection agency.

Insurance companies often make over-payments to subscribers and medical providers by mistake. These errors are caused due to duplicate payments, pricing changes, oversight by the accounting department, fraudulent claims or insurance coverage changes. These claims where an insurance company is entitled to a refund are called Insurance Recoupment, Insurance Payback or Takebacks.

These incorrect payments are incredibly hard to recover and often require the involvement of a Debt Collection Agency. Over-payments cause millions of dollars of losses and write-offs for insurance companies annually.

The insurance company has the right to request a refund for the excess money that has been disbursed. States laws vary, but insurance companies must act quickly as many states put short time-frames for an insurance company to request a refund (Statute of Limitations).

Sometimes insurance company recovers money by reducing future payments, also known as offsetting.

Recoupment is one of the best ways to increase profitability and cash flow for an insurance company. Hiring a Collection Agency after 60-90 days if in-house efforts to recover the money have failed can limit losses on such accounts.

If you need an experienced collection agency for insurance recoupment or takebacks –  Contact us

When a third-party collection agency contacts an insurance company, the insurer is reminded of its obligation to pay claims promptly. Failing to resolve medical insurance claims on time can result in a violation of state law.

Once an insurance company receives a collection notice from a professional collection agency, they are under pressure to act fast.

These laws and payout periods vary from state to state in terms of operation, complexity, and severity. However, they all share the common goal of compelling insurers to promptly and fully pay all legitimate claims. Debt issues in the BSFI market are anticipated to grow significantly over the next 10 years.

Non-timely reimbursements is a leading cause of stress and burnout among medical professionals, then why not outsource unpaid medical insurance claims to a professional agency and get paid faster.

Examples of “prompt-pay statutes” law in some states.

Texas Insurance prompt payment statute:
The Texas Prompt Pay Act (“TPPA”) is codified in the Texas Insurance Code as Subchapter J of Chapter 843 (governing health maintenance organizations (HMOs)) and Subchapters C and C-1 of Chapter 1301 (governing preferred provider organizations (PPOs)).

California prompt payment statute:
California Health & Safety Code 1371. A health care service plan, including a specialized health care service plan, shall reimburse claims or a portion of a claim, whether in-state or out-of-state, as soon as practicable but no later than 30 working days after receipt of the claim by the health care service plan, or if the health care service plan is a health maintenance organization, 45 working days after receipt of the claim by the health care service plan.

Florida Insurance prompt payment statute:
Florida statute 627.6131, otherwise known as the “Prompt Pay Statute,” requires insurance companies to make decisions and pay out on claims quickly. The timeframe created by this legislation depends on how the claim was received, either electronically or physically.

New York State prompt payment law health insurance:
Law § 3224-a (McKinney 2000) requires payment of health claims by health insurance companies within 45 days of receipt of such claim; N.Y. Ins. Law § 5106 (McKinney 2000) requires motor vehicle no-fault providers to pay health claims arising from vehicular accidents to be paid within 30 days of receipt of such claim.

North Carolina: 30 days for payment or denial.

North Dakota, Georgia: 15 days

Ohio, Oregon, Delaware, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Montana, Nevada, Wisconsin: 30 days

Oklahoma, Colorado, Pennsylvania, Missouri, Nebraska, Vermont, Virginia, Wyoming: 45 days

Alabama, Arkansas: 30-45 days

Arizona: 30 days after the claim is approved

Louisiana: 25 to 45 days

Mississippi: 25-35 days

( days refer to “working” days)

References:
www.tlrfoundation.com/sites/default/files/pdf/TLR_Prompt_Pay_PDF_V01.pdf
danahyandmurray.com/florida-prompt-payment-statute/
www.dfs.ny.gov/insurance/ogco2002/rg207242.htm

Are you trying to shortlist a Collection Agency by looking at their Google reviews or Yelp rating? According to inc.com – 88% of customers read an online review, influencing their buying decision. But, a single bad review can undo the value of 40 good customer experiences.

Those online review methodologies work well for restaurants and doctors, but the same criteria does not work well for the Debt Collections industry.

• Most negative reviews are left by debtors who hate debt collectors anyway. That is because the Collection Agency recovered some money from them, which they were not planning to pay.
• Some disgruntled employees who could not adapt to the pressure of being a Debt Collector leave a negative review about the job or the workplace. Maybe they could not make enough money as a debt collector and left a negative online Google review.
• Many clients submit highly disputed debts to a collection agency and expect that those debts will somehow be magically recovered. If a debt is highly disputed or too old, even a collection agency may not be able to recover those. No collection agency will recover 100% of the debts assigned.
• Satisfied people are often thankless. Not many clients who get good returns take the pain to leave a review for a Collections Agency on Google or Yelp. No one wants to publically announce online that they use the services of a collection agency. Some clients leave positive reviews because their Collection Agency Rep requested them to do so. Dissatisfied customers are more vocal, and so are the debtors.
• Competitors may intentionally try to plant fake negative reviews to sink the business of their rivals.
• Many businesses, including collection agencies, often hire “Reputation management firms” and professional marketing firms to ensure good online ratings, which has almost nothing to do with the real recovery rates of that collection agency. They attempt to game the online review system.

We are not saying there is no way to gauge a collection agency, but due to the nature of the job they perform, they simply cannot be evaluated by general public reviews.

Many people from the accounts receivable industry crack jokes by saying that it is quite possible that a Collection Agency with horrible ratings on Google could be the best one (since it recovered so much money, it landed up annoying too many people). We are not recommending you use this judgment criterion either.

Many agencies that are rated higher on Google do so by requesting their employees, friends and only satisfied customers to leave 5-star reviews and thereby artificially raise their ratings. Unlike sites like Amazon,  where we have a “Verified Buyer” tag next to a review, generic online reviews like those on Google/Yelp have no way to know whether the reviewer has even used a service or if the reviewer is a debtor, employee or someone else. Therefore these reviews are subjected to manipulation.

Some agencies simply push their ratings higher to take advantage of Search Engine Optimization. However, some agencies are genuinely rated higher, but we are talking very broadly. Better Business Bureau (BBB) ratings are a lot more reliable.

The right way to gauge a collection agency is by their recovery rates, product offerings, adherence to the debt collection laws, and the experience of their management and staff.

The medical industry uses Collection Agencies a lot. May you have a friend who is a doctor, he can recommend a good collection agency.

References:
www.inc.com/andrew-thomas/the-hidden-ratio-that-could-make-or-break-your-company.html

Minimizing the accounts receivable has become extremely important for the Car Rental industry. Chargebacks, vehicle damages, fuel charges, tire damage, one-way drop-off, and parking tickets are common issues that rental car companies face.

Online ride-sharing services already present enormous growth challenges for the industry. Therefore losing money to unpaid bills further impacts the cash flow.

Car rental companies like Enterprise Rent-A-Car, Hertz, and Avis have been fiercely competing with Uber, Lyft, and Turo, which are genuine businesses but probably have an unfair business advantage due to low operating costs and taxes.

Leaving money uncollected from past-due accounts is like leaving money on the table. An effective accounts receivable strategy is vital to survive, and Debt Collection Agencies play a critical role in recovering outstanding debt for car rental companies.

Statistics indicate that accounts over 60-90 days past due should be promptly transferred to a collection agency for a better recovery. Collection Agencies can recover money most effectively with their vast pool of resources and partnerships. They will efficiently collect money from lease breaks, repossessions, damages, and credit card chargebacks.

Equipped with advanced Skip Tracing services and a collection staff that recovers money all year long, they utilize services like Collection letters, Collection calls and Legal suits. They follow a multi-step approach to recover money from people who have defaulted on their payments.

Collection agencies collect money empathetically and diplomatically by following federal and state collection laws. This will give you much-needed money for growth and transforming your fleet to EV’s as the times change.