Weighing the Benefits of Using an Outside Collection Agency?

Maximizing Cash Flow, Reducing Costs and Protecting Customer Relationships


By Jerry Cameron, President
Recovery One


The primary reason most companies use a third party collection agency is because they have exhausted their internal efforts to collect the debt. The costs associated with pursuing a past due account increases with the age of the account. The likelihood of collecting a delinquent account diminishes with time.

The resources of the credit grantor are best spent focusing on better credit decisions and protecting financial assets on the front end of the business transaction, while working the more current accounts with cooperative customers. Securing the sale on the front end is in most cases more important than the back side collection effort that ensues to collect a delinquent account.

In today’s competitive business environment, most companies find it best to focus on the core competencies of their business. They will utilize outside experts to perform the tasks that may not be mission critical, and where costs of process and time can be saved. Having an internal staff to collect unpaid balances with a “customer service” approach is effective in protecting the business relationship while expediting cash. The more difficult accounts, aging accounts, or the uncooperative debtor is best motivated by the third party psychology.

A professional collection agency brings to the collection equation “third party psychology”. This means the debtor now understands a third party is involved in resolving the debt owed, and the third party will do whatever is necessary to collect the money due. The once-valued relationship between the credit grantor and the debtor is now in jeopardy, if not already un-repairable. The debtor knows that the collection professional is a hired professional with all the available legal resources and will proceed with all necessary legal remedies and solutions to collect the debt.

The collection agency will be less sympathetic to the stall tactics and excuses used by the debtor. No doubt the agency has heard them all! “Third party psychology” motivates the debtor to pay because the debtor wants to avoid the many collection related losses, the additional costs, and the embarrassment that comes with a protracted and persistent collection effort, including reporting of the debt to the various credit reporting companies and/or encountering potential of litigation. In some cases the debtor will choose to pay rather than to deal with the persistent and invasive tactics of the more assertive collector.

Collecting delinquent accounts is not as simple as making repeated phone calls to the debtor demanding payment. The professional collection agency has developed and employs the necessary, creative and innovative methods and techniques designed to bring the delinquent account to the top of the pile for discussion quickly. The professional collector leverages the creditor’s collection position based on the language in the creditor’s credit application, contract, agreement, personal guarantee, etc. This all takes research. In some cases a full asset and liability search is required to understand the current financial picture of the debtor and his ability to ever pay the money owed. This is a costly and time consuming part of the collection function that most people don’t see.

The face-to face collection call when made by a third party offers the creditor an un-biased on-site evaluation and confirmation of the viability of a business, and the potential to ever pay the money owed. The face-to-face call requires that the investigator talk with the responsible party as well as others associated with the delinquent business. Where a phone call can be avoided, the face-to-face call is very hard to avoid. The full service collection agency offers the face-to-face solution to the collection equation as part of the normal collection process and at no additional fee. Some companies choose to send the company sales representative to make the face-to-face collection call. This can be an effective solution, but in many cases the salesperson is not trained and/or experienced or competent in overcoming the many stall tactic excuses raised by the debtor.

The full service collection agency has multiple resources and direct access to repositories of proprietary business and personal information needed to assist in identifying and locating the responsible party related to the debt. This same information is critical to identifying and locating assets that may be used in satisfying the debt.

Skip tracing procedures and investigative steps can be time consuming. Access to the various information sources is expensive. But, the professional collection agency will complete the due-diligence necessary to either proceed with the appropriate collection action, or justify the closing of and account as uncollectible. Additionally, completing the due diligence through a third party agency is usually an IRS bad debt write off requirement.

Sophisticated collection software is expensive but absolutely necessary when chasing delinquent debtors. Collection agencies today leverage the many efficiencies of scale available to them by using a well designed collection software that merges all account information electronically, and then coordinates all processes such as telephone calls, call history, and notes, follow-ups, promises, call-dialers, collection letters series, etc to maximize the collection process while reducing costs. The result is a reduction in costly man hours, a history of treatment and a record of the cash trail.

Licensing, bonding and insurance requirements are part of the over-all benefit of using a professional collection agency. The FDCPA, the FCRA, and the TCPA all are critically important federal laws that all collectors must follow, regardless if they are first party or third party. Regular training, the ability to monitor, and regular compliance testing is required. This is a costly step in managing the collection effort, but it’s absolutely critical, especially with the number of attorneys today who are making a good living from collectors and companies who break the law. The professional collection agency is licensed, bonded and insured to protect the interest of the Client.

Flexibility is another important reason to work closely with a professional collection agency. Having a genuine understanding of business goals and objectives, the collection agency will customize processes and procedures to perform as an extension of the internal treatment of the Client’s office. Talk-offs and customer sensitive solutions can be customized to best meet the needs of the Client. In some cases the Collector can act simply as an Ombudsman in resolving a dispute or finding common ground necessary to collect the debt owed. Many agencies will perform the collections function in a totally transparent mode, maximizing collection potential on each and every account using trained professionals while at the same time reducing costs, improving cash flow and the DSO. The earlier an agency is employed the less it costs!

Maintaining a sense or urgency regarding the delinquent balance is critical to the recovery process. Time is your enemy when it comes to collecting money. Many companies ignore the warning signs of a customer in financial trouble. Your professional collection agency will help to confirm first instincts of a customer acting more like a debtor.

Treating customers with dignity and respect is critical to any collection effort. Preserving the dignity of the customer provides a chance to rehabilitate the debtor back to a customer once again, if managed correctly. You agency needs to be in sync with your corporate culture and corporate philosophies to protect your company’s image and reputation in the market place.

Having attorneys on staff to bring extra pressure, but at no additional cost to the Client is a significant advantage to using a collection agency. Having the ability to forward the account to an Attorney who is proximate to the debtor is also very effective in escalating the seriousness of the debt, and in collection the money. But finding the right Attorney can be time consuming and costly if you don’t find the Attorney who understands the requirements or the time sensitive nature of most collection issues.

Professional collection agencies usually work on a contingency fee bases. That means if they don’t collect the money they don’t get paid. Today, many agencies are also adding and collecting the collection costs and attorney fees to the past due balance. This helps in reducing the over all collection related costs when successful. Professional collectors are best motivated by the opportunity to make more money. Typically collection agencies compensate their collection staff based on the collection performance rather than on an hourly basis. This historically has increased individual collector performance.

Profitable results are the true measure of any outside collection effort. Timing can mean everything to the collection equation. Knowing when or if to employ the many capabilities of a professional collection agency can only be decided by analyzing the age of the account, the credit information captured at the front end of the transaction, the ability to leverage the collection processes, the costs that will be encountered to collect the debt, and the value of the customer relationship to the business. In the final analysis you must decided how important is it to you to collect the money owed to you in a timely manner? In today’s difficult financial environment delay may mean that you will never collect the money.



Jerry Cameron
President
Recovery One
www.recoveryonellc.com