When should a small company (say, 50 to 500 employees in size) hire a collections agency? As an account ages, the chances of collecting on it decrease dramatically. It's expensive to carry accounts that you will not be able to collect using the methods at your disposal. It's often a better use of your company's time and resources to concentrate on other aspects of your business. Depending on your payment terms, if any customer is past due and not responding to you, consider turning the account over to an agency. This could be an account that is 40 days past due or 120 days past due, it is up to the business owner. The thing to remember is that the older the debt when you place it with an agency, the lesser your chances of getting paid.
When is it not a good idea?
It’s not a good idea when you don’t have documentation for the debt, such as proof or verification. This could be a signed credit application or a contract or a proof of delivery or proof of an order.
What can a collections agency do for a small company?
A collection agency can help you collect accounts that are past due, or not responding to your collection efforts. Collectors have a vast knowledge of collection techniques, technology and compliance issues. Using an agency will save you time and give you better results than you can get yourself.
What are some misperceptions about what they can do?
Many people think that debt collectors don’t have any rules and can do anything they want to collect on a debt. This is not true; collectors have to follow the FDCPA and any laws in their particular state.
How much will it typically cost?
Most agencies work on a contingency basis, starting at a 20% commission to a 50% commission based on what they collect.
How can I find a reputable agency?
Look in your local phone book and newspaper and make sure to research any agency you are considering before making a decision, the agency you choose is a reflection of your business.
- Is the agency a member of a national trade association? Membership is an indication of professional integrity.Does the agency belong to a local Chamber of Commerce?
- Does the agency charge fees that are clearly stated?
- Is the agency prepared to give the best possible service? An agency cannot guarantee results on any specific date, but will often estimate an average recovery rate that one can expect.Will the agency be sensitive to a consumer's individual situation? The agency should promptly notify you when it discovers a consumer who is a hardship case and recommend a proper procedure to follow.
Ask for references and contact them, contact any associations they belong to, ask how long they have been in business and what their success rate is.
I've heard you should look at the letters they'd be sending your clients. What should they say?The letters should follow any state laws for that agency, and should also be brief and to the point. They should state: 
- The name of the creditor
- The reason for the letter
- Explain why they are contacting the debtor
- The total amount due
- Suggest a solution (such as payment in full!)
- What they should do if they do not believe they owe the money
- Include the mini Miranda as per the FDCPA
What should they NOT say?
Anything derogatory or negative about the debtor or situation.
They should not threaten the debtor with anything you can’t or won’t do. For example you can’t tell the debtor in a letter that you will take them to court or report the debt to the credit bureau if you don’t intend to take that action.
Great interview at the starting a business website, Michelle (http://www.startingabiz.com/starting-a-collection-agency/). I'm planning to open an agency in Reno in February and I especially appreciate the part about buying charged off debt. I appreciate you help.
Posted by: Mark Wagoner | October 26, 2007 12:30 PM | Permalink to Comment