Dealing with delinquent accounts can be resource draining for all involved. When your cash flow is at stake, however, you want to take whatever means necessary to collect what is due. While there are numerous choices in collections agencies, you also want to make sure that your choice is right for representing your company. The agency should be responsible, professional, honorable and provide a solid recovery rate.
There are very important tips to consider and questions to ask when hiring a debt collections agency.
While researching debt collections agencies for hire, always inquire if an agency is licensed, bonded and insured. Licensing is different in each state and many require that collections agencies be licensed in the particular state in which they are collecting debts. Check with The Association of Credit and Collections Professionals (ACA) website to look for agencies state-by-state.
Some debtors may seek to sue collections agencies if they feel that they are being treated unfairly under the Fair Debt Collections Practices Act (FDCPA). If an agency is insured, this Errors & Omissions (E&O) insurance reduces risk to your company so that your business is not held liable for hiring the agency. A low-risk agency will provide a solid recovery rate with less time in litigation.
3. Specialized by Industry
Certain industries may require certain tactics for collections. The agency you choose should at least be familiar, if not specialized, in your industry. Ask if the agency has any other clients in your industry and if so, what their recovery rate is in that industry. The more industry-specialized the agency is, the more likely the debts can be recovered.
See also: BYL Industries Expertise
If the delinquent accounts are medical debt, the agency you hire should be HIPAA certified. Industry specialization requires certain certifications and compliance and as well, the collections tactics should fall well within compliance of the FDCPA.
5. Types of Debts
As with industry specialization, some agencies will have more experience with certain types, ages or sizes of debts. Again, ask about the types of debts in which the agency specializes. If your delinquencies are months rather than days past due, or if your collections are in the tens of thousands rather than the hundreds, you'll want to ensure you are working with an agency that understands the urgency of your collections process.
6. Training Program
Just as you would delve into a potential employee's background, a business owner should ask about training when hiring a debt collections agency. Each collector within the agency will be representing your company during the collections process. The agency staff should be educated on the intricacies of your industry and the regulations surrounding debt collection.
7. Collections Process
Because your company reputation is at stake and because you want to stay within the guidelines of the Fair Debt Collections Practices Act, asking about an agency's collections process is paramount to your debt collections agency research. Discuss the agency tactics and methods when collecting debts. Inquire and work with your agency contact on a process (how, when, how often?) that you feel best suits your needs.
8. Communication & Contact
Before you hire a debt collections agency, set some guidelines on how you'd like to be contacted throughout the collections process. Will you have a set contact to work with at the agency? Do you preferred to be contacted during the process or when the debt is collected? These questions are important for offering clarity and peace of mind to the business owner concerned about cash flow expectations.
An agency should be willing to provide reports to debt collections clients to provide details on collections, phone calls, notes and other methods of contact, plus all account activity. These reports may be weekly, monthly, quarterly or even real-time. Some agencies may offer a portal or dashboard that is available to the client any time.
Debt collections agencies obtain their fees in a few different ways. Ask the agency what they offer and if that works for your business needs. The most commonly used agency fees are:
- Flat fee - A flat fee is a specific fee that is charged early in the collections process.
- Contingency - Agency payment is a percentage and contingent on the amount of debt collected.
- Debt buying - A debt collection agency will buy the debt from you at a reduced cost and obtain their fees through the collection of the debt.
Although hiring a debt collections agency means that fees will reduce the amount of debt owed you, your resources - time and patience - can be saved while the agency does the challenging work of collecting. Of course, exhaust all options necessary to collect the debts before hiring an agency. Then, consider these questions and tips during your research so you can, at the very least, feel that your business is being represented with a firm but considerate hand.