What Services Should You Demand of an Outside Collection Agency?
There are a lot of collection agencies out there that would be happy to get your business. You might be using one or more of them now. But are they giving you the services that you deserve? Here is a list of services that top-flight agencies offer (and that you should be getting) as well as a few tips on what to watch out for.
- The agency should be fully computerized and have software which gives you the information you need to measure that agency's effectiveness.
- It should have a separate trust account into which all your funds are deposited and remain until they are remitted. The agency's fee should not be taken from the trust account until you are paid.
- Within 24 hours of receipt of a claim, an acknowledgment should be sent to you, and both written and verbal demands should be made on the debtor.
- Based on the results of the first debtor contact, follow-up should be made on a day-to-day basis, without harassment, to assure the greatest net return to the client.
- A written report should be sent to you within five working days of receipt of the claim. If urgent, a verbal report should be made with a written follow-up for the file.
- Within 30 days of the first report, a status and recommendation report should be sent to you.
- All recommendations for a payment schedule, settlement, or legal action should include a substantial amount of information about the background for the recommendation.
- If interest and/or attorney fees are collected, that should be reported to you, and, unless otherwise negotiated, the agency should take only their usual fee on those amounts collected. Some agencies keep it all!
- The agency should choose only quality, certified attorneys, negotiate the best rate for you, and provide timely reports about their activities.
- Unless a claim is for less than $2,000, or there are special circumstances (such as a dispute), the attorney's non-contingent suit fee should not be for more than five percent of the claim.
- When a legal file is closed, the agency should account for all advanced court costs.
- Remittances should be sent to you no later than three weeks after receipt of a payment that clears the bank. Collections via certified funds or from attorneys should be remitted within one week of receipt.
- It is very important to keep a close eye on accounts on which legal action is taken. Scrutinize the amount of fees paid. Sometimes an agency will keep some of the fees or costs advanced or will ask for additional fees when it knows an attorney is about to collect the account. Some otherwise reputable agencies do such things so that they can make more money or make up for giving lower fees to get the business. You can't buy a Cadillac for the price of a Chevrolet.
- From written reports, you should be able to track the following: how well the agency does on obtaining promissory notes and personal guarantees; post-dated checks; complete information enabling proper decisions; and resolution of disputes without legal action.
- An agency should also be available to give you sound advice on complicated matters, provide seminars or training to help your credit/collection departments do a better job, and give specific advice on how you can save money on collections.
- If you are a large user of agencies, you should consider visiting those agencies. Meet the staff to see if they are the type of people you want to represent your company. Review the agency's written collection standards. Look at the trust account. Check out the agency's software and hardware.
All of this checking out and visiting is important because a collection agency acts as your agent. As a result, any action the agency takes is a reflection on your company. Many clients have been sued because of their collection agency's actions. You are also putting that agency in charge of a lot of your money.
Do not rely on an agency's bond or membership in any association. It is not hard to obtain a bond, and the standards for belonging to an association are very limited and may not reflect the true nature of the agency.
The agency should be able to send the client a fully computerized report on any or all claims at any given time, but not less than on a quarterly basis. This report must contain all information needed by you to analyze an agency's effectiveness. The minimum information includes the following:
- Name of debtor
- Customer number
- Age of account when placed for collection
- Date received by the agency
- Amount collected to date
- Balance due
- Agency fees
- Attorney fees
- Net return to client
- Current status
- Date closed by agency
- Reason account closed
- Number of days agency had account
- Attorney fees advanced
- Attorney fees collected
- Court costs advanced
- Court costs collected
- Interest accrued
- Interest collected
Totals of all of this information should be given along with percentage relationships.
Jerry Kaplan is the founder of the Kaplan Group Kaplan Group. 805-646-9633