If you are having trouble recovering customer debts, or you have customers who are refusing to pay your invoices, it’s probably time to get professional help.
Debt collection agencies focus on recovering debts that are past due. They contact your customers by phone, in writing or via email. In extreme cases, they may even issue legal proceedings against your debtor company on your behalf.
Outsourcing your debt collection allows you to focus on running your credit department and can actually save your company time and money. There are many debt collection agencies to choose from, so it’s important to choose wisely.
In researching your options, here are 7 tips to keep in mind:
1. Agency Accreditation and Reputation
Look for the ones that have been in business for 5 or more years. There are a lot of smaller agencies that start up, but don’t last long. Find one that has been around for a while. Here in Australia, check if they are accredited by the Institute of Mercantile Agents, the Australian Institute of Credit Management and ACA International. Check for ones that also have their own legal firm attached.
It’s essential that the debt collection agency you choose will preserve your brand and company’s reputation during the debt collection process. A reputable collector will always act professionally and deal with customers the right way to ensure that there will be no damage done to your reputation and maintain valuable customer relationships. Working with a reputable debt collection agency will avoid the potential legal pitfalls of hiring a debt recovery agency that uses unethical or downright illegal methods to recover debts.
Make sure the agency you choose has a good track record. The track record doesn’t need to be too long, but as long as the collector has a handful of exceedingly satisfied customers, you can rest easy knowing that you’re in good hands. Ask for referrals.
2. Best Fit For You
It is important to hire a debt collection agency with an established track record of successful collections in your industry. The agency should be familiar with the terminology or jargon in your industry, also any specific rules or regulations governing your industry. If you’re in the strata insurance field, for example, the agency needs to be well-versed in insurance requirements and laws governing strata and owners corporations.
In deciding which debt collection agency is the best fit for your business, consider the type of debt (personal or commercial), the amount and size of claims you have, as collection agencies specialise in certain types of collection.
Don’t be afraid to ask questions of a potential agency. Questions you might ask include:
- Do they have online access?
- How long do they usually take to recover debt?
- When do you receive the money recovered?
- How flexible are they?
- Will they be able to provide separate invoicing?
- Can they handle litigation, if needed?
Fees vary greatly, although the majority of debt collection agencies offers a ‘‘No Collection, No Commission” service which can help you avoid the costs if the collection is unsuccessful. There are many factors that determine collection agency fees, including the size of the debt portfolio, the type of work required to collect the debt, the age of the account, the agency’s experience and more. Most collection agencies also have some type of tiered pricing structure, and most charge only when they collect.
Fees charged as a percentage of the collected debt are known as contingency fees. Typically, they range anywhere from 10 to 50 percent, depending on the size of the debt. Keep in mind that the lowest rate doesn’t always mean the best results. The return rate is what’s really important. You should never choose a debt collection company based on price alone. You get what you pay for with recovery, and choosing the cheapest collector probably also means selecting the least skilled.
4. Success Rates
It can be tricky to establish how successful an agency is at collecting. Debt collection is a tough industry and success rates vary greatly. Look for agencies that provide comprehensive reporting on things, such as recovery rate, age of the debt (time it takes to recover), month to month spin-down reports, comparison reports for different buckets of debt and also reports on the litigation cases – how much was recovered compared to the legal fees.
5. Debt collection best practice
A good debt collection agency adopts best practices in order to collect debts faster, whilst acknowledging the best techniques and strategies that actually deliver results. Reputable agencies also have access to industry-leading technologies and tools to enable them to either track down hard to find debtors or convince them to pay quickly.
When evaluating which collection company to engage, consider factors such as how many years they have been in business, how experienced they are within your industry, whether the agency has any industry memberships or how many clients they currently service in your industry, as this is a great indication of their success and results at recovering outstanding debts.
6. Technology and Training
The best debt collection agencies also have the best software tools in their industry. Ask them what their debt collection software is and what is the reputation of that company. Again, ask for referrals. You also want an agency that is ahead of the game in terms of future technologies and moving with the times.
When evaluating the technologies of your new debt collection agency, ask them about their digital technologies. Do they provide automatic SMS service to debtors? Automated scripts and/or letters? Do they provide online access for clients? Batch upload of larger debts?
You want a company whose employees are experienced and skilled negotiators. Find out if the collection agency’s employees receive regular education and training.
7. Online and “IRL” Client Communication
One of the biggest reasons to hire a debt recovery agency is that dealing with debtors yourself is frustrating and time-consuming. Good CFOs and Credit Managers will outsource the accounts receivables to professionals, then monitor them through the agencies’ online debt collection system.
So find a debt collector that will provide online access to view your debts, upload new debts, generate reports, send messages and view previous invoices. You also want a dedicated Client Manager assigned to you who is available to come to see you “IRL” (in real life). Someone who can come to your office and explain the debt collection procedure and even provide training in-house for your staff.
These are my 7 tips to find the best debt collection agency. Once you have found one that fits in with your company, organise regular catch-ups, either by phone or in person, so you know what’s going on with your debts. I will cover how to manage your debt collection agency in my next article.
Here at Debt Recoveries Australia and ADC Legal, most of our staff and legal practitioners are from insurance claims or broking background. Our passion is insurance claims recoveries. We live and breathe it every day.
About ADC Legal
ADC Legal Litigation Lawyers is a legal practice specialising in commercial advice and litigation, debt recovery and insurance claims recovery disputes. For more information, email us at firstname.lastname@example.org or call 1300 799 820. Talk to us about your litigation or dispute concerns via Skype at adclegal./span>
|About the Author
Adam Stewart is a Debt Collection Expert and owner of ADC Legal Litigation Lawyers. In November of 2013, he established ADC Legal – a legal practice specialising in debt recovery and insurance disputes. This is the perfect compliment to Debt Recoveries Australia as it provides a “one stop shop” for clients’ recovery and legal needs.