There are more than 5000 collection agencies in the United States. Yes, you read it right.
Each agency claims to be the best because they need business from you. How to find the best collection agency that suits your requirements?
Hiring a collection agency is like choosing a trustworthy business partner, one that understands the importance of protecting your reputation throughout the collection process. Here are the main factors that will assist you in shortlisting which collection agency is the best for you.
1. Does the agency have experience in your industry? Any statistics or references?
Collection laws and techniques to recover money from accounts receivable differ from industry to industry. For example, the approach used to collect money for a car dealer greatly differs from that of a dentist. A doctor may want to use diplomatic verbiage to collect money from unpaid bills, while a car dealership may want to go for intensive collections. HIPAA privacy laws apply only when the debt is from the healthcare industry. Credit reporting laws vary by industry and each state has different statute of limitations. Therefore, your collection agency should have extensive experience in your industry.
Recovering money is also about your own reputation. An experienced collection agency attempts to build a positive relationship with your debtor so that the problem doesn’t happen again.
A good collection agency must also:
- Consolidate debts based on guarantor? This prevents the debtor from being contacted multiple times for your different debts.
- Send itemized debts on the same notice if the debtor/patient used your service multiple times.
- They should not count the account marked as Bankrupt and Canceled as “Paid in full” to inflate recovery statistics artificially.
- Allow you to suspend accounts (ex: if a debtor agrees to pay in installments directly to you) and reinstate the service again ( if that debtor does not keep his promise).
- They should allow you to upload debt verification documents on the portal instead of emailing documents back and forth with the support team.
- It should have good Google reviews. More than 4 out of 5 stars.
2. Reputation on Google Reviews & BBB website:
Ask for references from your friends or your chamber of commerce. You may also check reviews on the Better Business Bureau (BBB) website. However, however not all collection agencies have great reviews on Google or Yelp. This is due to the nature of their work. Not just the creditors but even debtors can also leave feedback on Google which are generally negative reviews. Check if they are registered on the ACA website. Reputable commercial agencies are also members of the International Association of Commercial Collectors.
Ratings are important, but it is also essential to understand that agencies that collect from consumers generally have a lower rating than those that strictly do commercial collections. So, make sure you are not comparing apples to oranges.
3. Do you need services for Individual or Commercial collections (or both?)
Individual (or Consumer) collection refers to collecting money from individual debtors (a person). Business collections (or Commercial collections) is Business-to-Business collection.
What kind of debtors do you have – Consumer Commercial or Both? Therefore check if your collection agency has experience dealing with the type of debtors you have.
4. Adherence to rules and regulations: Rouge collectors invite lawsuits.
All collection agencies must follow the rules specified by the Federal and State governments, which include not indulging in threats, harassment, or falsifying information. Contrary to popular perception, plenty of good debt collectors are out there. While the occasional bad actor gets the headlines, less than 0.01% of all collection contacts end in complaints to state or federal regulators or the Better Business Bureau, according to ACA International, a Minneapolis, Minnesota-based industry trade group.
Rouge and abusive debt collectors have short career in the industry. Following laws is essential for the survival of a collection agency. Illegal actions can result in fines on the collection agency and the client (the original creditor). A debt collector should remain calm and composed regardless of stress and problems in debt collection activity.
A collection agency that follows guidelines like FDCPA and HIPAA is less likely to get sued. Commercial Collection Agency Association members are the only collection agencies certified by the Commercial Law League of America, and they have to pass some stringent requirements to obtain that certification.
Is your collection agency willing to provide detailed information on their collection process? For instance, how will your customers be contacted (letters/calls/attorney), how often, and how?
5. Licensed to collect in all 50 states? Always better.
Hiring a local collection agency is fine only if your debtors are local (and have not moved out of your state). But if your volume is large and your debtors are present in many states or may shift to other states, select a nationwide collection agency that is bonded and licensed to collect in all 50 states. What if your debtor relocates to a different state and is officially a resident of that new state? A collection agency that can serve all 50 states is always better.
6. Adequately Insured against lawsuits or not?
All Collection Agencies should have Professional Liability coverage for their errors and omissions. Defense for suits alleging failure to comply with the Consumer Protection Acts is the most common suit Collection Agencies face. FDCPA lawsuits are rising every year. Even frivolous claims cost money to defend; thus, this coverage is vital to a Collection Agent’s business. Do they have a digital insurance?
7. Ask for references and their recovery rates
Ask your collection agency to provide references for their old or current clients. Not all collection agencies will provide this. But an agency should be able to provide their average recovery rate for your industry minimally. This will give you a fairly good idea about their debt collection performance. A good collection agency will help you improve cash flow and increase your company’s profitability.
8. Do their “Services and Cost” suit you? Check the pricing of others.
Debts lower than $1000 generally do not require a customized collection approach. The bigger the debt, the higher the need for a customized approach. Some services are flat fee based, while others are percentage based. Here are some examples of services that collection agencies offer.
a) Written Demands: These are collection demands/letters and cost about $15 for 5 letters. Do they offer pre-collections as well? ( in pre-collections, demands are made under your name instead of the agency.)
b) Collection Calls: These are contingency-based collections. Depending on the balance, age, and services provided, a collection agency may charge between 20% to 50% commission on the amount collected. No recovery means no fees.
c) Legal suit: This is also a contingency-based collection and is suitable for larger outstanding debts only. An agency may charge between 10% to 50% commission for legal collections. Some collection agencies have tiered contingency rates based on the size and age of the account.
Look out for savings: Make sure to fully understand the collection agency’s fee structure. One collection agency may charge 40% for service; however, a similar agency may charge you 25% for the same service.
9. Technology: PCI complaint and is your data handled safely?
Does your collection agency have an online self-service collections portal (client portal), so you can see the debt collection status of each account submitted? If they do not have a client portal, will they inform you about the collections activity or proactively tell you when a payment is received? Do they take enough measures to secure your and the debtor’s data? If they accept credit cards, they should ideally be PCI compliant. Does their online client portal use Secure Socket Layer (GLBA/ SSL / HTTPS protocol)? If they are sharing data with other companies, are those secure or not?
10. Skip tracing services – Did your debtor move? Locate him!
Skip tracing is a service that allows a collection agency to try to locate a debtor if their contact information (address/phone) has changed. Unable to locate a debtor is a fairly common scenario. Therefore using skip tracing to find the debtor’s latest whereabouts is an integral part of collections. [See our detailed article here on Skip Tracing]
11. Background check on debt collectors?
A collection agency should check that their client’s sensitive data are not handed over to debt collectors with a criminal background. Your reputation is very important, and you want to ensure that the debt collector is not prone to use collection methods that harm your reputation.
12. Is Free Credit Bureau reporting an option or not?
Many collection agencies do not report noncollectable debt to the credit bureaus. During a collections call, if a debtor asks the collector, “Will you report this to Credit Bureaus if I do not pay”, or “Will this appear on my Credit History?”. If the collector says “NO”, the debtor is less likely to pay.
You have the right to place an entry on the debtor’s credit report if they have not paid your bill. It also protects creditors/lenders who may give a loan to your debtor in the future. A good collection agency will promptly mark the debt as paid on the debtor’s credit report once they have been notified that the amount has been paid in full. Every collection company must also follow the Fair Credit Reporting Act (FCRA) laws.
13. Litigious customer check performed or not?
Few debtors have a history and habit of suing back businesses they must pay. Ideally, a Collections Agency should do a scrub to check if a customer has a litigious history; if so, advise you accordingly. Select a Collection Agency which does litigious debtor checks since very few agencies do it, this will tremendously help to minimize the risk of potential lawsuits that can be filed against you.
14. How long will the prepaid-accounts remain valid after purchase?
The accounts you buy for written contacts have an expiration date ( typically 1 year or 2 years). It is ultra-rare for an agency to offer accounts that do not have an expiration period. This enables you to buy a big chunk of accounts for a cheaper rate and keep using them over the years. A $20 account cost for 5 contacts will fall to around $10 per account when a large chunk is purchased.
15. Are you being pushed for contingency services even if the account is not so old?
Fixed fee services have an upfront cost but are highly cost-effective. Core collection calls made by a debt collector are contingency-based and are an excellent deal for the collections company but not you. So if the age of your accounts is within 120 days and you are still being pushed for contingency collections by their salesperson, think twice. Understanding all the types of Collection Agency services and collection costs are essential.
Note:
We have listed a lot of selection factors above. Even an excellent collection agency may not be able to fulfill all points discussed above, which does not make them wrong or inferior. But this list will help you create a meaningful selection when comparing one collection agency with another.
We have shortlisted a few collection agencies based on their performance, pricing, and experience. You may contact us in case you are looking for one.
Getting the most out of your collection agency:
1. Be honest with your collection agency. Keep them informed of any changes you may become aware of during the collections activity on any account. Keep all the paperwork supporting the validity of the outstanding debt and provide them when your collections agency asks.
2. Sooner you submit an account for collections, the better the chances are of recovering that money. Typically, a collection agency will accept accounts 60 days after the payment date was due (also called the date of debt).