The questions in this series were formulated after considering the inherent challenges of hiring a collection agency as well as the related Google Search terms, insights into requests for proposals (RFPs), and finally, the pros and cons of existing articles on the subject.
As mentioned in part one, time is of the essence in debt recovery. Consequently, businesses interested in hiring a collection agency should formulate a list of questions and then establish a viable plan with a deadline for securing the best firm.
Twelve essential questions are discussed here, but others may be added to address the needs of specific business types.
Whatever the agenda, each and every list should address the critical factors forming (1) the framework of a sound collection agency and collections strategy (experience, compliance, certification, data security and collections technology); and (2) the desired results of a favorable return on investment, brand protection and customer retention.
What to ask before hiring a collection agency?
The first part of this series covered questions 1 – 6; this second and final part covers the remaining questions:
- How much experience does the agency have?
- Can the agency collect in all 50 states?
- Does the agency have a compliance management system?
- Which certifications does the agency have?
- Does the agency have receivables management technology?
- What type of reports does the agency furnish to clients?
- What is the agency’s commission rate?
- What is the agency’s rate of recovery?
- Does the agency safely transfer, process and store consumer data?
- Can the agency implement a national client, and if so, can it be done quickly?
- Will our indebted customers be treated with respect?
- Which department at the agency will protect my interest?
In order to make an informed decision about hiring a collection agency, companies should consider reviewing our series on debt collection RFPs since it offers additional background about the common denominators of compliance, certification, data security, collections technology and more.
Part two begins with two questions that could easily be answered with the response “that depends” because the age of debt has a profound determination on fees and recovery rates.
7. What is the agency’s commission rate?
Third-party collection agencies use a variety of fee structures (flat fee, pay-as-used, contingency and the less common per full-time employees), so companies should inquire about options that suit their needs.
Contingency fees range from 15 – 50 percent of the collected debt and are an effective solution because prospective clients only pay when debt is collected by agencies.
Agencies categorized debt by its age (30, 60, 90, 120, 150 days or older) and the number of agencies attempting to collect it (primes, seconds, tertiary, quads and warehouse).
Consequently, a graduated contingency fee structure might start at the low end for new debt (primes) and escalate to 30 percent (e.g. seconds) or higher for older debt (e.g. quads). The rationale is that newer debt is easier to collect, thus creating a greater probability of success and a cost-effective investment by the agencies.
Contingency arrangements are preferred by agencies with call centers as well as many companies because they represent tangible value and a favorable return on investment.
8. What is the agency’s rate of recovery?
This is one of the tougher questions for agencies to answer because not all debt is created equally. Nevertheless, it is an important question to ask before hiring a collection agency.
The national average collection rate is currently 15 – 20 percent, but companies should consider inquiring about recovery rates for their specific type of debt portfolios.
Like the variables influencing commission rates, prospective clients should anticipate greater recovery rates from newer debt since it’s easier to collect. Thus, companies can expect the highest recovery rates for primes, but diminishing results for older debt such as tertiary or quads.
If assigned the task of collecting aged debt, proactive agencies will want to know the history of the debt (i.e. the factors leading up to its current status) in order to develop the most effective collections strategies and segmentations.
In addition to recovery rates (dollars collected ÷ dollars placed for collections), companies should also inquire about customer retention rates (number of accounts resolved ÷ number of accounts submitted).
9. Does the agency safely transfer, process and store consumer data?
The need for sound data security policies and procedures to thwart malicious hacking is the new norm in today’s business world. Consequently, best-in-class agencies maintain tight standards for protecting sensitive non-public personal information (NPI) during the exchange, recovery, storage and archiving of electronic files. This is accomplished with the help of encryption, secure file transfer protocol (SFTP), secured environments, and workflow automations.
Furthermore, best-in-class agencies protect their internal networks from public facing networks with a system of security hardware, firewalls, routers and more. All systems are properly maintained, updated and monitored to ensure maximum protection.
Agencies should also monitor the issuance of authorized access to call centers; the monitoring, addressing and reporting of access violations; the levels of user authorizations; and the measures to ensure business continuity and timely disaster recovery.
Finally, agencies should be willing to provide prospective clients with copies of plans, policies, procedures and training manuals pertaining to all areas of data security.
10. Can the agency implement a national client, and if so, can it be done quickly?
A successful onboarding process typically results from a cooperative effort between agencies and national clients that often takes four-to-six weeks to plan, implement and test. The timeline may entail designating key team members, confirming client expectations and requirements, scheduling internal and external meetings, planning operations strategies, programming receivables management software, training agency team members, coordinating reports, establishing a SFTP and more.
During final testing, agencies will review all manual and automated processes, collection letters, call scripts, reports, compensation plans and training procedures. The ideal implementation begins with the assignment of an agency project manager and ends with final testing of all systems before the “go live” date. The result is a seamless transition to a new agency and the beginning of a positive working relationship.
11. Will our indebted customers be treated with respect?
Treating indebted consumers with respect has many advantages including compliance, retention and brand protection from lawsuits or bad publicity.
Before hiring a collection agency, companies should confirm that the agency is compliant with the Fair Debt Collection Practices Act (FDCPA), Telephone Consumer Protection Act (TCPA), Fair Credit Reporting Act (FCRA), Servicemembers Civil Relief Act (SCRA), Health Insurance Portability and Accountability Act (HIPAA) and more.
For example, the FDCPA specifically states that collectors should refrain from:
- Harassment or shaming
- Profanity or abusive language
- Threat of harm to consumers or their reputation
- Callbacks after consumer hang ups
- Email or fax messages without prior authorization
Furthermore, agencies should have a compliance management system that monitors the entire consumer compliance process, including policies, procedures and self-assessments as well as new-hire and ongoing compliance training about the applicable laws and regulations.
Finally, collectors should be trained to confirm the debt, listen to consumer concerns, answer questions, explain details and negotiate a repayment plan.
12. Which agency department is responsible for protecting my interest?
The client relations department is responsible for maintaining day-to-day contact with clients to ensure that the interests of clients and consumers are being protected. These departments gauge agency performance and responsiveness; offer direct, proactive assistance; and ensure that clients are satisfied with the existing working relationship between the two organizations.
The client relations manager is an agency’s reliable point of contact. They take necessary action to improve relations, including the resolution of disputes and complaints from clients and or consumers, and the escalation of communications to the executive team.
The department is also responsible for scheduling meetings with clients, establishing and updating consumer account information in the receivables management program, coordinating collection notices and letter-writing strategies, and issuing payment receipts. Client relations also handles and documents a variety of communication channels (phone, mail, email and faxes); assists the agency operations team; and coordinates the standard and customized reports that are sent to clients.
The collection industry is a never-ending exercise in monitoring a thousand details, both large and small. This attention to detail is what separates the good agencies from the great ones.
Companies interesting in hiring a best-in-class collection agency would be well served by conducting a thorough search for an agency that (1) is committed to that level of precision; and (2) fulfills their business needs.
All of the questions in this two-part series appear on most RFPs for collection services, and the respective answers should be considered before hiring a collection agency.
Optio Solutions was established on a framework of industry experience, compliance management, collections technology, data security and ongoing certification. This commitment provides clients with a favorable return on investment, brand protection and customer retention.
Contact Optio Solutions to inquire about an individualized collection strategy or to request a proposal for your company.