(Editors note: Brian Cutler is senior director of product management with Ontario Systems. He submitted this column to VentureBeat.)
At some point in your company’s history, someone – be it a long-term partner or a new client - is not going to pay a bill.
Securing that bad debt takes time and energy. Today, fueled by a troubled economy and reduced staff, many businesses are turning to professional collection services to address the increase in accounts receivables from debtors. However, with more and more suspicious agencies popping up thanks to this demand, due diligence is more important than ever.
Through my own experiences dealing with delinquent accounts and working on the frontlines of the accounts receivable management industry, I’ve found that choosing the right collections agency (which is not always the lowest bidder) is a big decision that can increase your business’ bottom-line. Here are five things to consider when hiring a collections agency:
Reputation – No company wants to be associated with shady collections practices, so check the agency’s credibility with the Better Business Bureau, Attorney General, etc. While the agency itself will face the consequences if they are not compliant, your name can easily be tied to the violation.
Check also to see if the agency is a member of any state or national trade associations such as ACA International that are held to high standards of quality management.
Recovery rate - Understand the agency’s recovery percentages and rates. For example, if you turn over $2,000 worth of accounts at a 25 percent commission rate and the agency recovers only $400, you will receive $300. If you refer $2,000 at a 35 percent commission rate, but the agency recovers $700, you will receive $455.
Basic math, yes – but note that even though the commission rate is higher in the second example, the net back to you would still be greater because the agency’s recovery rate is higher. The commission rate by itself is meaningless. Net return is the key.
Industry experience – This may seem obvious, but an agency working mostly in student loan collections may not be the best choice if you’re in the medical collections industry. Also, if your industry or customer base is governed by specific rules and regulations, find a collection partner with the appropriate knowledge and experience. Experience is often a good indication of quality.
Technology – Keep in mind that your company (and customer’s) data will be on the system of the agency you choose. As such, you need to be certain that its IT infrastructure is safe and secure. Look for security certifications showing they are compliant and have the necessary tools to keep your data safe, such as a PCI certification, HIPPA, or ISO 27001.
Some agencies utilize advanced technology with compliance and best practices built-in, ensuring their representatives are unlikely to violate your customers’ rights while collecting debt and are utilizing the appropriate treatment strategies to maximize your return on investment.
References – Another point that may seem obvious, but gets overlooked too often: Check references, particularly from clients that are in a similar business. Don’t simply accept written ones the service provides, either. Dig in and make some calls: Ask previous customers their opinion of the collection service. Find out if they have had any problems. And determine what the service’s typical success rate is.
Hiring a collection agency is not an easy decision. Even though you’re dealing with people or companies that haven’t paid their bill, you’re still dealing with customers. Search for a partner, not just a collection agency. Your ultimate goal is not only to secure debt, but to professionally represent your organization and add value to your client relationships.