Debt collection, whether commercial or consumer, is one vital part of a comprehensive credit risk management system. When we hear the words “credit risk management,” or “Cash Flow” we may have a general idea of the meaning, but for the record, a comprehensive credit risk management system will use a wide range of “before and after” credit risk products, services, systems and solutions that will fulfill three objectives for a company:
- To safeguard its assets – cash, accounts receivables and inventory
- To support its sales and marketing goals
- To strengthen the internal risk management system
In view of these goals, I would like to take a moment to explain what to look for when choosing a debt collection agency as one vital part of strengthening your company’s credit risk management system.
First, I am a believer that if you do not have an internal collection department that can efficiently handle your slow paying and outstanding accounts, (I see this with a number of clients as they lack resource and spend in this area) then by all means outsourcing the collection function to a qualified collection agent is a very prudent business decision. Our experience is that we usually deploy around 60% additional resources on the same volume usually being managed in a credit department.
Before even trying to understand if a collection agency is a good fit, you should step back and understand if your collection needs come under commercial, consumer or both within your business.
If your collection requirement is for large volumes of cases against individuals, your needs will best be fulfilled by using a call center type agency that specialises in handling these types of cases. Conversely, if your collection needs are commercial cases for mining equipment with balances in larger values, you would benefit by using a collection agency that specialises in this type of work. If you have a good mix between all aspects from consumers, SMEs through to large commercial you need to ask yourself how does the company segment these? What do they offer for each segment? How will they maximise my ROI?
1. How do you know that the agency you are dealing with is a legally and professionally legitimate company?
This idea is no different than trying to understand the creditworthiness of your customers. Since you need to obtain proof that the agency is LICENCED to provide their collection services, don’t be bashful about asking the agency to send you a copy of it’s license and certificate of insurance. You certainly don’t want to be held responsible should a legal problem arise in the course of the agency’s efforts to collect a debt on your behalf. In addition, inquire as to whether the agency has been involved in any lawsuits or paid any fines due to some wrongful collection activities.
2. Does the agency already service your industry and is it possible for you to call one or two of their other customers to get their impression?
Talking with other companies, especially those in the same industry, will give you one of the best assurances for the performance and reliability of this agency, after all referrals are paramount?
3. What are your present internal collection policies and procedures, and do you normally outsource to an agency when an account becomes delinquent?
Understanding at what point you need to place an account with an agency will result in how well the agency can perform on your behalf. For example, let’s say that you have one collector at your company who is trying to collect on a couple of hundred cases per month. If under your present system your collector cannot manage the accounts efficiently then best to sit down with your agency, segment the pool of accounts to be placed, and then place them with the agency on a timely basis that will allow the agency to support you to the fullest. Too often, companies wait months before they outsource an account. A rule of thumb is that an account that is already six months delinquent only has a 50% chance of being collected and at one year only a 20% chance. Every company has to decide at what it point it will be more cost effective to place the account with an agency rather than attempt to collect it in-house. From many years in the industry the more streamlined the process the better the collection rate. The companies that adopt a culture that the collection agency is an extension of their department have reaped better results.
4. Are you selling a complicated service that requires time to deliver?
The more complicated the product that you are selling, the higher the skill the collector needs to have in dealing with the collection issues. Depending on industry, some debts can be disputed. Disputes require a high level of capabilities and knowledge to resolve, meaning the agency needs to understand how to best deal with disputes to ensure that the client’s costs don’t spiral out of control and the debt is settled as soon as possible with minimal reputational damage and least expense possible. I have personally witnessed this many time where the costs have outweighed the recovery, no outcome reached, and the levels of communications have broken down between the agency and client. Make sure your agency is proactive, thinks outside the box and has experience in your industry or similar.
5. What are the overall collection capabilities of the agency?
This entails confirming the total number of collectors, the type of training they would receive to handle your accounts, the number of accounts handled per collector per month, the technology being used to support the collector and the average overall collection rate.
6. What are the analytical reporting capabilities and Innovation?
This comprises the ability of the agency to give you an update of any account at any time that you have passed to it for collection. These days, many agencies have developed collection systems that allow clients to access the system through the internet by password. The collection system should allow you to see the status of each account, confirm how much has been collected to date, show the past payment remittances to your company, and allow you to understand every aspect of the service of your accounts, from placement through collection.
How are the collection agency contacting my debtors? Letters? Recent studies have shown that letters take 3 days to read, Emails 12 Hours and SMS 3 minutes. These are powerful stats, so the question to ask is: “how is my agency reaching my customers to obtain payments”? Or are they reaching them at all?
These are all valued questions in your selection process?
7. Finally, what is the agency’s ability to communicate with you?
Every agency should have one person at the company who will respond to your inquiries and requests on a regular basis with another person able to back them up. Many agencies these days don’t even know their customers and there can often be a very impersonal feeling when one calls to the agency. Is your agency proactive in communication? From experience a company you engage with should be an extension of your brand?
A quick cheat sheet?
When deciding on a collection agency ask yourself?
- What are some examples of innovation you have implemented in your business?
- How will you apply analytics to my portfolio?
- What unique service approach do you employ in debt recovery to make you stand out?
- Where you serve in panel arrangements, how are you positioned against your competitors?
- How can you demonstrate your company’s commitment to the personal and career
development of your staff?
- How does your agency handle complaints to better protect your clients’ brand image?
- Will your operators be trained on our specific collection requirements?
- Do you have a leading-edge propriety owned IT infrastructure to effectively manage referrals?
- Is the agency able to tailor solutions specifically to our business recovery needs?
Asking these questions will assist you in determining which agency is ‘best fit’ for your recovery needs and increasing your customer engagement and net return.
- We have never been in this position before, so we can confidently say its unknown territory for us all
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