How to Hire a Collection Agency

How to Hire a Collection Agency. When you started your business, you thought of the product or service you were going to offer and the profits you were going to earn. You probably didn't consider the fact that not everyone pays their bills, and that you might need to hire a debt collection agency.

Look for an agency that is familiar with your type of business. Strong-arm tactics that might work in one industry may fail miserably with your industry. Find an agency that has clients in your line of work. Check their reputation and references.

Know the type of debtors you have. If your debtors are mainly individuals, hire a collection agency that specializes in individuals. If not, look for a collection agency with commercial experience.

Find out how they collect outstanding debts. If they mainly mail letters, review them first to see if your clients will be receptive to them. If they use phone calls, review their telephone collection scripts. Ensure they are professional and not harassing.

Ask how the agency handles skip tracing. If the debtor has moved with no forwarding address and disconnected their phone, that usually would end the process. Skip tracing uses various databases to locate the debtor. Find out how the collection agency utilizes this practice.

Know your debtors' geographic locations. Collection agency licensing differs from state to state. If you know your debtors are located in several states, find out if the collection agency can cover several states, or if they will contract out-of-state debtors to another collection agency. Ask how that impacts your costs.

Make sure the collection agency carriers insurance. Unhappy debtors may feel it is their right to sue annoying collection agencies. An agency with Errors and Omissions insurance can protect you and the agency from frivolous suits.

Compare costs. Collection agencies either charge on a contingency basis (which means they retain a percentage of the amount collected) or on a set fee that can be paid monthly or quarterly. To compare costs, determine the amount of outstanding debt and multiply it by collection agency's success rate. If an agency has a 75-percent success rate and you turn over $100,000 in debt, the agency would theoretically collect $75,000. If an agency is looking for a 22 percent contingency fee, it would receive $16,500. Check if the contingency fee of 22 percent on a 70 percent success ratio is cheaper than a set annual fee.

Tips

  • Collection agencies are regulated by Fair Debt Collection Practices Act. Familiarize yourself with the practices that are accepted and those that are prohibited. Make sure the agency you hire complies with FDCPA.

Resources

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