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.
1. Does the agency have experience in your industry? Any statistics or references?
Collection laws and techniques to recover money from overdue accounts receivable differ from industry to industry. For example, the approach used to collect money from the customers of a car dealer is very different from the strategy utilized to collect money from the patients 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. Therefore, your collection agency should have experience in collecting debt that is relevant to your industry.
Recovering money is also about building a connection with your customer. An experienced collection agency attempts to build a positive relationship with your debtor and transmit a positive experience so that the problem doesn’t happen again.
Do they also?
- Consolidate debts based on guarantor? This prevents the debtor to be contacted multiple times for your different debts and also helps you save money if using the fixed fees service.
- Send itemized debts on the same notice if the debtor/patient took service multiple times from you.
- They should not mark bankrupt and canceled accounts as “Paid in full” to artificially inflate recovery statistics.
- Allow you to suspend accounts (ex: if a debtor agrees to pay in installments) 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 collection agency’s support team.
- Should have good Google reviews. Definitely more than 4 out of 5 stars.
2. Collection agency’s reputation on BBB (only):
Ask for references from your friends or your chamber of commerce. You may also check reviews on the Better Business Bureau (BBB) website, however, collection agencies never have good reviews on Google or Yelp. This is due to the nature of their work. Not just the creditors, even debtors can also leave feedback on Google which are generally negative reviews. Check if they are registered on the ACA website. Most reputable commercial agencies are members of the International Association of Commercial Collectors.
Ratings are important, but it is also important to understand that agencies that collect from individuals generally have a lower rating than those who 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 or Commercial or Both? Therefore check if your collection agency has experience in dealing with the kind of debtors you have.
4. Adherence to rules and regulations: Rouge collectors invite lawsuits.
All collection agencies must follow rules specified by the Federal and State governments, which include not indulging in threats, harassment or falsifying information. Contrary to popular perception, there are plenty of good debt collectors 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 a 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 even on the client (the original creditor). Regardless of stress and problems in debt collection activity, a debt collector should remain calm and composed.
A collection agency that follows guidelines like FDCPA and HIPAA is less likely to get sued. Members of the Commercial Collection Agency Association 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 collections process? For instance, exactly how will your customers be contacted (letters/calls/attorney), how often, and in what manner?
5. Licensed to collect in all 50 states? Always better.
If your debtors are local, then hiring a local collection agency is sufficient. But if your volume is large and your debtors are present in many states or may move to other states then it is recommended to 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.
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 minimally provide their average recovery rate for your industry. This will give you a fairly good idea about their debt collection performance. A good collection agency will help you to improve cash flow and increase the profitability of your company.
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 is the need for a well-thought-out 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 of 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 fee structure of the collection agency. 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 keep you informed 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 complaint. Does their online client portal use Secure Socket Layer ( 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 important part of collections. [See our detailed article here on Skip Tracing]
11. Background check on debt collectors?
A collection agency should check that the sensitive data of their clients are not handed over to those debt collectors who have 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. Free Credit Bureau reporting an option or not?
Many collection agencies do not report the 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 credit report of the debtor 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 that they need to 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 check 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 accounts remain valid after purchase?
For written contacts, the accounts you buy come with 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 it 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 extremely cost-effective. Core collection calls made by a debt collector are contingency-based and are a great deal for the collections company but not you. So if the age of your accounts is within 120 days and still you are being pushed for contingency collections by their salesperson, think twice. Understanding all the types of Collection Agency services and collection costs are important.
We have listed a lot of selection factors above. Even a great collection agency may not be able to fulfill all points discussed above, which does not make them bad or inferior. But this list will certainly help you to make 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 that 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 asked by your collections agency.
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).
Visit our “Contact us” section to get in touch with one of our shortlisted collection agencies.