The Top 3 things to consider when placing accounts for commercial collections:
- Getting Paid!
- Protecting Your Company’s “BRAND”!
- Licensing, Bonding, and Insurance
1. Getting Paid – The obvious first priority of any credit manager is to make sure the company gets paid for the product or services their company has sold. When it comes to working with your 3rd party debt recovery solution provider (Collections Agency), how do you know if you have the best and not just the best salesman that can sell to you.
Many of our larger clients tend to have two or even three collections companies working for them. This affords them the opportunity to compare the performance of their agencies. One of the methods I recommend to this regard, is a 60, 30, 10 program. Give 60% of your business to the top performing agency, 30% to the next and 10% to the new guy. Every year you should evaluate their performance and bring on a new agency to replace the poorest performer. Always start the new agency with 10%. If they perform, then steadily move them up in terms of the amount of business you give them. Keep your performers and replace the bottom 10% EVERY YEAR. (look at our Value Analysis )
This process assumes you are tracking and comparing the performance of your agencies. I would recommend that you have standard reports that you receive from each of your agencies to make this task easier. Require it!
2. Protecting Your Company’s Brand – Brand protection is often overlooked, but is very important. It does not matter if you get your money, if your name gets dragged through the mud. The worst thing that can happen is the name of your company appears on the front page of the Wall Street Journal. “ABC COMPANY Accused of Unethical Collections Practices”
Collections companies that just use loud talking and repetition to wear down a debtor are seeing poorer and poorer results. So, what do they do? Raise their voice more and call more often. They may eventually collection your money, but significantly increase your chances of getting a call from the Attorney General or a lawyer.
If your collections agency does not have a solutions based processes, where they have identified 3 to 5 solutions for the debt prior to the very 1st phone call, then they have limited chances of having a positive outcome with regards to your company’s brand.
If I were the CFO of your company, I would prefer not to collect the $2,000 or $3,000 from a debtor if it meant my company’s name was going to get negative press that could cost millions. Get my money, but protect my brand!
If your agencies are not taking care of this, they should not be one of your service providers, PERIOD!
3. Licensing, Bonding, and Insurance – Many collections companies say they are licensed and bonded. Have you verified it? Many states require more than just a license and their bond often depends on the amount of collections they do in that jurisdiction. Did you know that Tennessee and Nevada require the collections manager to take a test? Did you know that the city of Buffalo NY requires a license to collect in their jurisdiction? Some states require that the bank in which the agency uses for their Trust Account, has a branch in their jurisdiction.
Coupled with number 2 above, think about this scenario: You hired an unlicensed collections agency to collect debt in say Nevada or Arizona. There are several complaints from the debtors to the Attorney General in that state. Who will they ultimately come after? Who has the deeper pockets? Who’s name will make a better headline? If it’s you, you are in trouble!
This is where insurance becomes very important. With as much as $16K per violation, it does not take many violations to ring up a pretty big fine. In some cases there are as many as three violations per call. How many calls does your agency make on your behalf? Having a few hundred thousand dollar policy just will not cut it. I would recommend a minimum requirement for your service providers of $1M in E&O insurance. I would suggest that $1 for every $1 you place with your agency per month. For example if you send $1M per month to your agency, then that agency should carry $1M worth of insurance.
Better safe, than sorry and better to have verified, as not knowing is not going to help at the end of the day.
Ken Bone
President/CEO
Burt and Associates
“A Trusted Partner in Debt Recovery”
