Collecting receivables is an important step in ensuring a healthy cash flow for a business, and more so for a home-based business or solo entrepreneur. However, account receivables collection is a time-intensive process that most small businesses just don’t have the time, know-how and energy to pursue. Hence, many turn to third party collection agencies to collect the debts and amounts owed to them.
But how do you choose the right collection agency to work for you?
American Profit Recovery suggests making sure that the qualities are factors when deciding to retain a third-party collection agency:
- Member of ACA International; The Association of Credit and Collection Professionals. Make sure the collection agency you are talking to is a member and that they subscribe to and follow their Code of Ethics. http://www.acainternational.org/.
- Personal Referrals: As with anyone looking for someone to do business with, always ask around. Talk with other business owners or members of your local Chamber of commerce to find an agency that others you know may have used.
- Educated Workforce: When interviewing the representative from a collection agency, ask them their philosophy of who they hire. Do they hire college educated people or do they just bring in anyone to fill a position?
- Different Approaches: Does the agency you are talking to have several methods of collecting on past due debt? The agency should offer a low cost flat-fee structure along with other proven methods.
- Record of Community Service: make sure the collection agency you are hiring has a record of community service. The agency should have a track record of giving back to the community in some way.
- Background Check: It is imperative that the agency you are dealing with and may be calling on your customers pursues background check as part of their normal hiring practices. Anything less is not acceptable.
AllBusiness.com also recommends that:
- Choose members of the American Collectors Association or the Commercial Law League of America., as both associations require that their members adhere to a code of ethics and are familiar with the Fair Debt Collection Practices Act. Both associations also provide ongoing education for their members.
- Ask for proof of insurance. Most licensed collection agencies are required to carry bonds for their particular state and Errors and Omissions insurance, which protects both the agency and client for any errors made by the collection agency.
- Ask about the recovery rate of an agency. Ask for references to verify the percentage.
- Check to see how long it took the agency to collect and if they collected the whole debt or just a portion of what was owed
There’s also an article over at EzineArticles.com that discusses what to look for when hiring a collection agency and here are some of the recommended factors:
- The best thing to do is to network within your community or within your profession to see who other creditors are using that they like.
- Ask, “Out of every $1,000 that you collect exactly what will I receive?” Asking the question that way eliminates the possibility of additional fees that you did not know was going to be included.
- Ask the agency for a list of references. Then call some of them to see if the agency is doing a good job for its existing clients.
- Ask for a 10-day demand letter service. With that service, the first thing the agency will do before it takes over your accounts is send your debtors a letter. The letter will say that your debtor has ten days to pay you before the collection agency gets involved. If your debtor pays you within the ten day time period the collection agency will not get involved and the agency will either charge you nothing or charge you a nominal amount to send out the letter.
- Ask the agency about what kind of regular reporting you can expect to receive from the agency. This way, you can get feedback from them on how the agency is progressing in collecting the debt.
- Ask the agency when you can expect to get paid. Will it be on a certain date every month, or is it inconsistent?
- Finally, with a new collection agency you have never worked with before, it’s a good idea to give the agency a limited amount of time to work your accounts. Just say, “Let’s try this on a trail basis and see how it goes.” Two to three months is plenty of time to know if the agency is going to be able to do a good job for you.