should be able to negotiate a flat fee,
at least for in-house collections, and
require the agency to remit “gross”.
However, in collections, as elsewhere,
you get what you pay for. So do not
take the lowest quote without a clear
understanding of how the accounts
will be handled. Collection firms are
in business to make money, just like
you are. The firm with the lowest fee
may not provide the quality of service
required, or meet your handling
requirements.
Value Addition
The extras that some collection firms
provide, like training programs,
educational materials, may not seem
particularly important, but do not be
too quick to ignore them. These “value
adds” are often an indication of an
agency’s expertise, commitment to the
industry, and desire to provide quality
service to their customers.
Contract
The best contracts are not too long, in
large type, and are written to be easy
to understand, with terms and costs
clearly outlined and fully explained.
Recovery Rate
Recovery rate should be a major
factor in your analysis. Typically,
recovery rates are calculated on the
entire portfolio, regardless of age at
engagement, date placed, average
size of account, location of debtor,
etc. A recovery rate calculated in this
manner, however, does not give the
most accurate assessment. Consider
requesting the agency provide recovery
rates based on the following:
Recovery rate on all accounts: Keep
these factors in mind: the type and
age of accounts being included in
the calculation and the percentage
of claims still open at the time the
recovery rate was calculated.
Recovery rate on closed accounts:
Any account that’s still open has the
potential to be collected. A recovery
rate based on closed claims probably
provides the fairest analysis of your
agency’s results. Even better – remove
accounts that involve bankruptcies,
have passed the law of limitations, and
valid disputes from the calculation. In
most cases, these were not collectible
to begin with.
Recovery rate on claims that have been
worked at least 60-90 days: It is not fair
to make a judgment on a recovery rate
that includes accounts that have just been
placed. Allow the agency a reasonable
amount of time to work the claims.
When selecting what you consider a
“reasonable” amount of time, d on’t forget
to consider extenuating factors, such as
age at engagement and complexity.
Older accounts and those with
complex issues often end up with
lawyers, increasing the length of time
needed to collect.
Recovery rate by aged debtors:
According to collection experts, the
older an account when it is placed with
debt collector, the less the likelihood
of collection. Note: when comparing
the recovery rate of multiple agencies,
make sure all are calculating “age
debtors” in a similar manner.
Recovery rate by location of debtor:
This is valuable particularly when
international accounts are included in the
portfolio Recovery rate by each of your
divisions or locations. The agency should
be able to set up your account so that you
get an overall view of the results, and each
division or location gets accurate data for
their piece of the portfolio.
This can provide essential intelligence
into the effectiveness of each division’s
internal processes. For instance, if
a particular division is receiving
significantly higher recoveries than
the rest of the company, they might
have better internal processes that can
be duplicated to improve the overall
percentage collected.
Stage of Recovery: How accounts are
recovered has a huge impact on the price
you pay for collection – and cost, though
by no means the most important, is
another thing to consider when evaluating
how your agency is performing.
If the agency is able to collect your
accounts in-house, your contingent
fees will generally be less than if an
advocate is brought into the picture.
In addition, if the collection can be
made amicably, you save court costs
and the extra portion filing fee. Timeframe to Recovery: Another factor you
will want to consider is how long, on
average, it takes your agency to collect
your accounts.
The first eleven factors touch on the
qualitative aspect and last three on
quantitative side since you want to be
as objective as possible when analyzing
the above factors.
But, when push comes to shove, if
you are not comfortable with your
agency’s personnel or do not feel
they are responsive to your needs you
may have the wrong agency. If your
overall perception is negative, however,
let the agency know. Give them the
opportunity to address your issues.
By exploring these important areas,
you will be able to put together a good
working profile of an outside collection
agency that is right for you.
You will also be able to examine the
qualifications of the various collection
Agencies available and make a wellinformed choice.
In a nutshell, seek a partner not just a
trader. You want a firm that not only
gives you good value for your money,
but also complements your culture and
adds value to your relationship.
Wasilwa Miriongi is a certified Credit
Professional currently working as the
Managing Director, Del Creder Credit
Management Limited. You can engage
him on this or related matters via email
at: [email protected].