Are you worried that if you refer your customers to a debt collection agency you’ll lose control of your brand? If you’ve had negative experiences with debt collectors, you may think that asking someone else to handle your unpaid invoices is the wrong move.
Yet with the right company, you can form a partnership that will help you resolve payment challenges professionally. Here are the best steps to follow when looking for a collection agency to work with, from evaluating whether it’s the right move, to seeking quality referrals.
1. Be Sure You’re Ready
If your customers aren’t paying, it’s hard to keep doing business. You have to make money to continue working. Yet if you haven’t tried other tactics first, then you may not be ready to hire a collection agency.
First, you can try to contact the customer. Often they won’t answer the phone, but if they do, you may be able to work out a payment plan. Some people still intend to pay, they’re just having trouble with money management or have hit a rough spot.
Don’t refer a customer to collections unless they have defaulted on a payment plan.
If they don’t respond to your calls or emails, send a formal letter requesting payment. Be sure you document all your attempts to collect the debt.
You may be ready to try working with a collection agency if you have a new customer who has never paid you. They are more likely to not pay at all than someone who has previously been billed by you.
Any customer who tries to complain or claims they don’t owe you anything may also be one that will never pay. Instead, they’ll try to get out of it. A collection agency can help in those situations.
If you deal with B2B clients, a collection agency still may be able to help. You can learn more here about who should use commercial debt B2B collections.
So how do collection agencies work? They typically charge a percentage of the money they’re able to recover, with fees contingent on them actually collecting any money. A few agencies may charge a fixed rate instead.
2. Find Out Their Success Rate
Instead of searching “debt collection agency near me,” and choosing one at the top of the list, do a little research about their success rates. Collections agencies get paid when they make a collection, so they’re very motivated to do well and are required by law to treat people fairly.
Check to see that they’re doing well and collecting debts for their current clients. You can ask them about success rates when you contact them for more information, but you can also ask for referrals from people you know. You’ll get the best information from someone who has used their services.
Another way to find out more about an agency is to check with the Better Business Bureau or another reporting agency like Consumer Affairs. The state attorney general would have a record of any lawsuits against the company. You can also contact the Consumer Financial Protection Bureau (CFPB) because they register complaints about the FDCPA (more about that below).
The collection percentage an agency takes is just one factor to weigh. In fact, what is most important is how much money you will get into your coffers.
This will depend on the results an agency is able to achieve.
You’re better off with a collection agency that has a higher fee rate and better recovery rate, versus a collection agency with a low fee rate and a low collection percentage.
When looking for the right agency for you, be sure to ask for an industry analysis. This will allow you to compare their results with other established agencies.
3. Look for a Debt Collection Agency in Your Industry
The best action collection agency knows the industry and has experience working with businesses in that field. For example, if you’re an ambulatory service or healthcare facility, you need an agency with experience working in the medical field.
Because collections laws vary in different fields, you need to find a company that knows your industry. They’ll be more familiar with the rules and how to adhere to the Fair Debt Collection Practices Act (FDCPA).
One way you can find out if they follow the FDCPA is by asking about their practices. Find out how they track debtors. Ask to see a typical script.
These are all ways to ensure the agency is reputable and that they’re following the applicable laws. They should be a business that is in line with your company’s practices and values.
4. Evaluate Licensing
A collection agency needs a license to practice. Each state’s requirements are slightly different. Some only require that they pay a fee; others require them to submit financial statements and a business plan.
Whichever collection agency you go with should have the proper licensing. That means if they’re national, they have all the licenses in every state. When you’re dealing with clients across the country, your collection agency also has to deal with them.
If you’re a smaller business that only deals with local clients, your collection agency can be a local business as well. They only need to be licensed in their home state if all your clients are from there as well.
5. Get Someone Who Works With You
As with any vendor or business relationship, you want to work with someone who is more of a partner than a vendor. A transactional relationship is fine, but the best relationship is one where you work together to get the job done.
Develop a debt collection agency list of characteristics. You can include attributes that are nice to have, as well as must-have qualities.
You’re dealing with your clients’ sensitive, personal information, and so is your commercial collection agency. You don’t want to pass it off to just anyone. Work with a business you can trust, who treats your customers with respect even when attempting to settle an account.
The Right Choice
You can choose to work with any debt collection agency, but the best one for your business is one in your industry. You should also make sure they’re a reputable company with a high success rate. Following the steps listed above can help your business go from seriously delinquent customers to accounts paid.
Credit Management Company has the ability to resolve payment challenges quickly with superior communications. If CMC sounds like a good fit for you, contact us today for help recovering customer debts.