The Hidden Costs of Using a CHEAP Collection Agency for Commercial Debt Collection

The Hidden Costs of using a CHEAP collection agency for commercial debt collection

"The only thing more expensive than hiring an expert - is hiring an amateur" - Red Adair

After 20 years in commercial collections it is always amazing to observe companies who base their choice for a collection agency, solely on cost. With the present economy I understand and sympathize. What I don’t understand is why companies take the cheap route and are then surprised by the lack of tangible results.   

Reputable companies that make decisions based strictly on the lowest bid don’t realize, or choose to ignore, the risk to their reputation and potential financial liability. The reason many collection agencies offer CHEAP rates is because they cut corners. This is especially true with commercial debt collection.

When considering a collection agency to collect your commercial debt consider what happens when an agency cuts corners, BEFORE making a decision solely based on the cheapest rate.

CHEAP collection agencies have cheap staff.  The main reason cheap collection agencies always have lower recovery rates are because their staff lacks proper training and commercial knowledge. The modus operandi of these cheap agencies is to try and blindly collect commercial accounts using consumer collection tools and tactics.

Commercial debt collection requires the highest skill level and experience in the collection industry. It takes years to learn the intricacies of commercial credit. Professional commercial collectors with this type of experience don’t come cheap. The end result with a cheap agency is their cheap rates deliver a lower return compared to a professional commercial agency with higher rates. 

CHEAP staff make stupid mistakes. Commercial debt collection is a specialized field and a consumer collector is prone to leaving money on the table, because they lack knowledge. The big problem here from a Client perspective is mistakes come with a cost. Big mistakes can also have big liabilities attached.

A collector, who enters the commercial collection arena, without being armed by training and knowledge, is like a fool walking with your reputation though a field of liability landmines. Professional commercial collectors avoid land mines and protect your reputation.

CHEAP collection agencies fly blind when they try and collect. Commercial accounts usually require more intensive research than consumer. Cheap agencies with cheap rates can’t afford to properly research a commercial debtor company. Even though an account may be tens of thousands of dollars they will cut corners and just fly blind into a collection.

A professional information infrastructure is very expensive to set up and maintain. Cheap rates mean no margin for a proper commercial information infrastructure. It is the customer who actually suffers from a poor infrastructure with low recovery rates.

Experience is everything. Often, a professional commercial collector with 10 or 20 years’ experience can accomplish more in one phone call, than an amateur in 10 calls. Commercial debtors are more debt savvy than consumer debtors and commercial collections have more loopholes. A professional knows how to close the loopholes and get paid.

Experience knows the local business landscape and the applicable laws in each Province or State. A professional knows what levers to use for prompt payment.

CHEAP agencies don’t come with any Perks. A professional commercial collection agency offers valuable advice while a cheap agency remains silent. Frequently for example, a commercial collector will run across a faulty credit agreement. While the cheap agency doesn’t even recognize the problem the professional agency will suggest some minor changes that reduce future risk.

These are just some of the ricochet effects when cheap agencies venture into the commercial debt collection arena. You get what you pay for and choosing a commercial collection agency is no exception. This is why so many companies use PCR for commercial collections. Protecting our Clients from the stupidity above is part of how WE PROTECT YOUR CORPORATE HEARTBEAT.

Top 5 Characteristics of Great Debt Collection Negotiators

Top 5 Characteristics of Great Debt Collection Negotiators

By Michelle Dunn

New and experienced bill collectors must continuously hone their negotiating skills. 

Anyone who is trying to collect money, even if the amount was agreed upon at the time of the sale, seems to be required to negotiate.  Most bill collectors, especially new ones, are not as effective at negotiating as they could be.  I do know some of the characteristics of a good negotiator and of a good bill collector and wanted to share with you the things that they have in common.

1. Understanding the negotiation process – highly effective bill collectors recognize that negotiations are a process.  It requires an understanding of the billing, credit approval and payment processes. 

2. Focusing on a Win-Win situation – Win-win means both parties feel like they have “won” during the collection process.  Great bill collectors help their customers or debtors try to solve problems and look for opportunities to make that possible.  They also know when to be firm and limit what they do in order to reach an agreement that is acceptable for both parties.

3. Patience – Too many bill collectors try to go for the “quick fix” so they can get paid and move on to the next account.  Great bill collectors know that patience is a virtue and that rushing the collection process often leads to not getting paid. Great bill collectors take time to gather information BEFORE contacting the debtor or customer, they think carefully about possible solutions and this is critical because major mistakes can be made when you rush, some of them involving breaking the law (FDCPA).

4. Confidence – Great bill collectors are confident when making a collection call or collecting in person, they aren’t arrogant, rude or cocky, they are CONFIDENT.  To reach this level of confidence, you must believe in your ability to reach a win-win agreement with the debtor.  This confidence is gained through experience, the more debt collections you do, the better you become at it. 

5. Listening Skills – People will tell you just about everything you need to know if you ask the right questions or keep quiet long enough for them to continue speaking.  The biggest mistake a bill collector can make is not listening, or bigger yet, interrupting a debtor when that might mean if they had just listened longer, they may receive key information that will assist them in their collection efforts.

Being a bill collector is a skill that takes time, effort and energy.  To collect more money you need to work at it, invest the time learning the dynamics and science of negotiating and being firm.

A 26 year Debt collection industry veteran, entrepreneur, award winning author, one of the Top 5 Women in Collections for 2007 & 2008 and one of the Top 50 most influential collection professionals of 2007, Michelle Dunn is the author of many books and a self syndicated columnist.  Learn more at www.Credit-and-Collections.com & www.MichelleDunn.com

Managing the Predictable Problems of Growth - Vistage Speaker Ian MacDougall

At Priority Credit Recovery, we see business owners go through these problems all the time. Here is a very timely article that talks about what you can do as a new business owner to increase your chances of survival.

Managing growth would be a lot easier if you could peer into the future and see exactly what would happen to your company if you doubled or tripled in size. Unfortunately, magic crystal balls only exist in science fiction and fairly tales, right? Not so, says Vistage speaker and organizational  
development expert Ian MacDougall.

He asserts that you can know about many organizational problems in advance, and therefore plan ahead to minimize their impact on your company. All it takes is an understanding of organizational life cycle principles and the ability to identify in your company the characteristic traits  of each growth phase.

"As organizations grow, they move through a series of distinct phases that make up the organizational life cycle," explains MacDougall. "Some phases involve growth, others involve decline, but each has a unique set of identifying characteristics and problems that befall all companies who enter it. More important, these problems are unchanging and highly predictable. Every growing company -- regardless of size, industry, or age -- sooner or later runs head-on into these inevitable challenges.

"The good news is that by knowing where your business stands in the life cycle, you can identify these major barriers to growth before they occur. You can't eliminate them because they are direct results of the previous stage's growth. But you can do a much better job of managing them and thereby facilitate your company's evolution to the next growth phase."

The five growth stages in the organizational life cycle are courtship, infancy, go-go, adolescence and prime. Since the business exists only in the entrepreneur's mind during courtship, this article will focus on the predictable organizational pitfalls found in the other four phases.

Infant organizations eat money like it's going out of style. Consequently, they have two primary tasks -- get the product out the door and keep the cash coming in. To keep the cash flow positive, the company has to sell, sell and sell some more. Often, it takes business at a loss just to get the cash coming in. Infancy represents an exciting but very risky time in the life of the business. According to MacDougall, the primary challenge in infant organizations is survival. This manifests itself in the following organizational problems:

• Running out of cash. Often, the infant organization grows so quickly that it outstrips its ability to pay its bills.
• Making a fatal mistake. The company gets hit with a product liability lawsuit, misjudges the price point of its product, or suffers some major trauma from which it can't recover. Unlike larger companies with more resources, it only takes one major mistake to deliver a death blow to an infant business.
• Loss of commitment. Often the founder gives up too much equity in order to finance the business. Once he loses control, the founder often loses interest and the company  dies  of neglect.
• Personal problems. Many times, the founder's spouse doesn't share his or her vision and dream for  the business. When the spouse resents how much time the entrepreneur spends with the business, the personal turmoil can easily tear the fledgling business apart.

To work through these inevitable problems in the infant phase:

• Keep the cash flow positive at all costs, even if you have to tone down your sales growth for a while. Do not grow yourself out of business.
• Don't give up control. You may have to give up some equity, but never give away controlling interest in your business.
• Track cash flow before profits. Rather than using traditional monthly P&L statements to monitor your company's financial performance, use a 13-week rolling cash flow report. Forget about profits and watch cash flow like a hawk.
• Don't seek the advice of consultants. Most are trained to work with larger, more mature organizations. Consequently, their counsel tends to be inappropriate for infant organizations.
• Avoid premature delegation. In infant companies, the roles are often blurry. Do not delegate any roles or responsibilities until you know exactly what you're delegating.

If your company is experiencing cash flow problems, give us a call right away at 1-866-266-0117. 

At Priority Credit, "We Protect Your Corporate Heartbeat."