Twelve Dangerous Mistakes When Utilizing Collection Agenecies

Cash Flow Specialists, Inc.

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Maximizing results from collection agencies is not as easy task. Specialized information on a creditor's successful management of agencies is not readily available. Avoiding these common mistakes can greatly increase your odds for success.

1. Choosing an Agency - Rate as the Deciding Factor.

Selecting an agency and placing accounts is just not as simple as some people might like it to be. Certainly, some credit managers will use gut feel and make a decision without all the facts, while others could be accused of spending more time analyzing the situation than it may be worth. A happy medium is suggested. Watch for key factors such as financial stability, automation, expertise, technology, experience and references rather than just smiling faces and nice cars. Steer clear of the agencies that offer a lower rate than the competitors. In this business, you really get what you pay for. Low rates, without an accompanying special project or reason, may just be low service.

2. Not Maintaining a Presence at the Agency

Mistakes are made when managers are too busy to work closely with their agencies. Presence can be maintained by on-site visits, or sending statistical comparison reports regularly. On-site visits should be conducted and audits or operational reviews will help both the agency and the client understand the progress towards mutually agreed upon expectations. If on-site visits are not possible, the credit professional can maintain a presence by monthly publication of statistics regarding the agencies and phone conversations. Agencies are competitive. Let them know where they stand in comparison to your other agencies. They may just strive to be number one!

3. No Debtor Verification or Financial Checking

It's your dollars that are placed with an agency. It's very important to regularly check their financial stability and the funds received from debtors. Many internal auditors suggest that the debtor payments be checked with a series of random verification letters sent directly to the debtor.

4. Motivation by Intimidation

Sometimes, credit managers prefer an agency relationship that is based on intimidation. Today's credit professionals are working not by intimidation but by establishing a long-term partnership with the agency--working together to accomplish mutually agreed-upon goals.

5. Using Agency Generated Statistics.

Measurement of agency performance has, in the past, been difficult. Often, without internal generated numbers, credit managers had to rely on agency-generated statistics. There are some inherent problems in this. For one, agencies tend to report their information differently. Some agencies will take bankrupt accounts out of the numbers, some don't. Some take disputed accounts out of the numbers, some don't. Credit professionals never quite know what is in or out of the numbers unless they can generate their own.

6. Not Measuring According to the Placement Date

Another fallacy in measurement is not comparing the recovery from the year and the month it was placed to the year and month the payments were made. When remittance checks for today are compared with the placement of this month, agencies and clients fool themselves with a false sense of security and measurement. To increase recoveries, just reduce the placements for the month. If your usual placement is about $100,000 per month with collections of $10,000 per month, try placing only $50,000 for May and you will probably still have recoveries close to $10,000 on May's check. That way, you increase recoveries from 10% to 20% over night. Batch tracking measurements to date of placement is the only way a credit professional can determine results with any degree of accuracy.

7. Comparing Outdated Historical Averages or Industry Trends Without Knowing What Makes Up that Number

Historical averages and industry trends are also difficult to measure to use when looking at your agency's performance. Too many changes have taken place recently to believe that historical numbers will be useful for long. Internal work effort changes, marketing or solicitation changes, collection activity changes and all make history number start to look like hysterical numbers.

8. Not Providing All Information and Tools to the Agency

Another common mistake is not providing all the available information to the agency. For example, a large bank places accounts in a tape-to-tape format. The bank knows which accounts are mail return accounts, because it has already identified them. However, the bank does not flag the return mail accounts for the agency. By flagging the return mail accounts, the agency could begin an immediate skip tracing effort rather than wait for the return mail. Other information known to the client might be just as useful if shared with the agency.

9. Inconsistent Placement

Inconsistent placements are probably not noticed as much by the credit grantor as the agency who has to deal with the issues of staffing and prioritizing accounts. When a credit manager places large volumes of work in a sporadic method, the agency is usually less effective than when the manager places work regularly and consistently. Without regular placements, sometimes good collectors are under-utilized and later over-worked. Consistency in placement can mean better agency staffing levels, planning and results.

10. Not Comparable Placements

Maintaining comparable placements is also not as easy as it seems. Many times, credit managers have given work to an agency because they know they are excellent with large accounts that will need suit. This same agency may get all the skip accounts because they are good at it also. Or, because the agency is in Texas, they might get the Texas accounts. Generally, people consider their placements fairly consistently. However, many good agencies have been the unknowing victim of their own excellent results. One collector said, "Whenever the debtor is really bad, or makes me mad, I give the account to ....., because I know if someone is going to collect it, he will."

11. Quibbling Over Whether the Agency "Earned" Commission on an Account

Commissions are an issue with many. At times, a client will quibble over whether the agency actually did enough work on the accounts to earn a commission. Quibbling sends the wrong message. Since it is still a people business - we need them on our side. Rest assured, it works out when they spend a great deal of time on another account that doesn't get collected.

12. Not Reporting Direct Payments

Along this line, many clients do not have a set program for reporting payments which are made directly to them. This results in the agency having to call the client for payment information, and, in fact, collect the account twice, once from the debtor and once from the client. That's not the best way to maximize efforts and results.

Agency management looks deceptively simple. But, the agency relationship is not as simple as handing over the accounts and saying, "collect it!" Maximizing recovery on delinquent accounts is a complex job.