What does a Credit Manager look for in a Collections Agency?

Credit Managers are looking for an agency that will get their invoices paid as quickly as possible for as little expense as possible.  Aside from that they might be looking for the following:

1.       Professional service – the Agency is still acting as an agent of the company

2.       The Agent is compliant with all the applicable laws and all legislative acts so as to not put the company in a precarious position of liability

3.       The Agent is licensed, bonded and insured

4.       The Agent has staff with industry specific collection experience – A Credit Manager would be much more comfortable that an account is dealt with properly knowing there is prior knowledge of the industry

5.       The Credit Manager needs to know how the Agency instructs their staff regarding collections – are they aggressive; do they only make 1 call a week and move on with or without an answer; do they only send demand letters and quit after there is no contact; do they play the “numbers game” or do they provide more of a service to their customer; do they treat a small account with the same effort as a large account

6.       The Agent has proper geographic coverage the company requires

7.       The fee is competitive as uncomplicated as possible – a sliding scale can be confusing and all a Credit Manager wants to know is, what the cost is at the end of the day, for submitting the file.   A Credit Manager would also want the ability to negotiate a “Special” fee for unusually large accounts that may be submitted

8.       Agent invoices and/or issues customer payments to the company on a regular basis.  The Credit Manager usually must code the collection costs back to the original Cost of Goods Sold (the original G/L) to where the original charge came from so it’s important to understand how the invoicing needs to be done.   The longer the Agency holds a customer’s payment, the longer the Credit Manger is without their money

9.       Ease of retrieving information on an account submitted for collections – how can they review the accounts submitted to the Agent.  What is optimal to some Credit Managers is to be able to review the work done online – they may also be able to enter new information they have received and need to give to the collector assigned.  It is difficult to work via phone sometimes due to time constraints and being on the phone – it can often be days before you can connect to each other and it might be too late dependant on the information

10.   How and when the Agency determines when to recommend placing and account with a Collection Agency – it is important to retain a Collection Agency that has the same mind set as you do.  An experienced Credit Manager will want to retain an Agent that will do the best thing for their customers and not for themselves.  The Credit Manager will want to be assured that the Agency is acting in their best interests and that includes the issuance of accounts

11.   How and when the Agency determines when to recommend placing an account into Legal status.  An Agent should not waste time and effort on collections when they know from researching the company there is no chance of payment forthcoming.  The Agent should identify this issue with the Creditor as soon as possible for the Creditor to make the decision of Legal or Write off

12.   Every Credit Manager might want something tailored to them when issuing an account.  Every Credit Manager will say they are busy BUT they still need to report to their superiors what is happening on an account.  It is sufficient at the initial placement of an account to the Agency, to indicate to their superiors that an account is “Placed for Collections” but after a while, a review needs to be done to decide whether the account is collectible or if the account is to be written off and a decision made regarding how any future recovery would be recorded.  The Company Policy should define this but it may not.  It is important for the Collections Agency to be upfront and timely with their findings regarding the account submitted for collections

a.       What is the likely hood of getting any payment if not the payment in full including any historical collections/legal’s and their outcomes

b.      If an account is uncollectible by Collection means, offer another possible avenue to collect the funds (Civil Claims or Court of Queen’s Bench) and the potential cost to your customer if they decide to go that route.  It can be the case that a Collections Agent has a legal person on staff/retainer to do Civil Claims which is less costly than the Company would pay having to hire their own lawyer.

c.       Decide how long the Agency keeps the account active and what happens if they close the account

                                                               i.      If an account is closed with the Agency, what shows on the customer’s credit bureau and how does that affect them

d.      How does the customer want to handle potential disputes the Agency uncovers

13.   Does the Agency belong to any Credit Associations?  Some Credit Managers may find this important and others may not be interested.  An affiliation with a Credit or any other Association indicates the Agent is either becoming or is well established in the community where they are located.  This can make a Credit Manager comfortable in knowing the Agent has some longevity and investment in the community and their actual existence

14.   Does the Agency have any references?   A Credit Manager is more apt to retain an Agency’s services if their industry peers have had success with them.

It is important to remember that a Credit Manager uses outside sources to make their lives easier, not more difficult.  They don’t want to have to work out a calculation at the beginning or the end of the issuance of a file to the Agent. 

Selecting a Professional Collection Agency

Choosing a professional collection service to manage your delinquent accounts and other related tasks is a wise decision, but where do you start? You want an agency that will represent your organization in a responsible and professional manner, and one that provides a satisfactory rate of recovery while maintaining your public image. The decision involves more than just giving your business to the lowest bidder – it requires careful consideration.

Getting the most from your collection agency requires cooperation and strong communication. The following are some key issues that can help businesses determine the quality of an agency and help increase your success in the future.

Capabilities

What can the agency do for you?  Collection agencies use experience and resources to provide professional accounts receivable management services for numerous industries.

Agencies can offer skip tracing services to locate consumers when they can no longer be reached at the address or telephone numbers listed on the accounts.

Many also have the ability to forward accounts to other agencies if a consumer has relocated. You should consider the types of technology the agencies are using and how your technology might interface to allow for the electronic transfer of data and information.  In addition, some agencies provide billing services, including coding, processing, printing and mailing, while others offer business administration and accounting services. Sometimes an agency provides pre-collect services, where collectors start working an account before it becomes past due. Other service agencies provide consulting, telemarketing, campaign calling, reminder and follow-up appointment calls and temporary office administration.

Market Knowledge

Make sure the agency has the skills and knowledge needed to successfully collect on your particular type of account. For example, collectors working in commercial collections must be familiar with corporate terminology and indemnities, while collectors working consumer debt collections need to demonstrate knowledge of the regulatory framework devised by the various provinces, the lender/guarantor relationship and bankruptcy rules related to the collection of consumer debt. It’s important for agencies and credit managers to be aware that each collection market needs to be handled differently.

Recovery

Discuss recovery percentages and rates. The percentage rate of commission may be less important than the agency’s percentage of return on the total dollars you refer for collection. For example, if you turn over $1,000 worth of accounts at a 25% commission rate and the collector recovers only $300, you will receive $225 from these “bad debts.” If you refer $1,000 at a 35% commission rate, but the collector recovers $500, you will receive $325.  Even though the commission rate is higher, your profit would be greater in the second example because the agency’s recovery rate is higher. Remember that the commission rate by itself is meaningless – net return is the key.

Procedures and Policies

Investigate the procedures an agency uses to collect, including when it begins working an account, the collection letters it uses and whether it has trained employees.  Become familiar with the agency’s policies and standards.  A visit to the collection office can be helpful and allows you to observe the operation of the business.  Compliance with the Fair Trading Act (FTA) and other provincial legislation, regulating the collection industry, is critical to third-party debt collection agencies. Inquire about the policies and practices the agency has in place to facilitate compliance.

References

Another step in selecting a reputable agency is checking references. Try to contact at least two creditors in your industry currently using the agency’s services. Find out if the arrangement is successful and how satisfied clients have been with the services they've received. Also, try to determine if the agency has a good reputation in the community by contacting other credit grantors, the

Better Business Bureau or local Chamber of Commerce.

Professional Credentials

Make sure the agency complies with all provincial licensing and bonding laws, if applicable. Experience is often a good indication of quality.  Also, determine if the agency holds membership in national trade associations such as ACA International, the Association of Credit and Collection Professionals (ACA). Members of ACA agree to comply with all federal and provincial laws and regulations, as well as the ethical standards and guidelines established by the association.

Training and Development

Ask if the agency’s employees receive on-going training and education. ACA members have access to educational materials and seminars covering all aspects of collections. Although these opportunities are voluntary, participation indicates that the agency is responsible and recognizes the importance of professional, competent employees.

Insurance

The purchasing of Errors and Omissions Liability Insurance (E & O) can also be an indicator of a conscientious agency. This insurance often extends coverage to the credit grantor as well as the agency.

This is important because creditors can face litigation as a result of alleged violations by their collection agency.

Look for coverage on claims brought by consumers for wrongful acts such as libel, slander, wrongful eviction, and wrongful entry, and harassment, invasion of privacy or interference with business.  E&O Insurance should specifically cover violations of the FTA or Fair Trade Act. Clients of ACA members can request to see an insurance certificate for Errors and Omissions Liability Insurance.

The above suggestions are important to consider when selecting an agency. Competition among collection services is good for you as the client. This competition contributes to a more professional and efficient industry. By carefully evaluating your company’s needs, as well as the capabilities of the collection services available, you can maximize your accounts receivable income and ensure that your customers are handled properly.  Careful selection of a third-party collection agency strengthens your bottom line and helps you retain customers, leading to a more profitable business.

ACA is an international trade organization with approximately 5,300 members including, third-party collection agencies, creditors, attorneys and vendor affiliates. Headquartered in Minneapolis, ACA serves members in the United States, Canada and 58 other countries worldwide.  ACA was formed in 1939 to help third-party collection businesses provide the best possible services to their clients, to serve as a clearinghouse for information and establish nationwide professional and ethical standards for the collection industry.

Today, as a key source of information for the collection industry our commitment to our members and their professions shows through in our emphasis on leadership, innovation and information. For more information visit ACA’s Web site at http://ww.acainternational.org.

Managing Your Receivables for Top Performance

There are certain key performance indicators (KPI’s) that any business can implement to significantly increase its odds of not only surviving but help it to thrive.

Each segment of your business, including your credit department, should have its own sub-set of KPI’s to ensure your cash flow is optimized while managing costs. 

Here are the compelling reasons to carefully manage your accounts receivable:

• ·         If one maintains a systematic method of managing accounts between 30-60 days past due, you should see an 85% reduction in accounts aging past 60 days.
• ·         After 60 days, the probability of collecting your account is 80%, at 90+ days, it slides to just 70%
• ·         If allowed to age past 90 to 180 days, the chances of a full recovery are now 54%!

So what steps can you take to maintain control of your receivables?

         Know Your Customer - Paretto’s Principle holds true in most companies that 80% of your revenue is generated by 20% of your customers. Segment your customers by assigning codes. For example:

A.      Best customers, great margins, pays within terms, few service issues.

B.      Bread & butter clients, consistent orders, no price haggling, pays no later than 45 days,

C.      Complains about everything, many warranty issues, stretch payables for a long time, takes unauthorized discounts. Customer you wish you hadn’t met.

D.      Dead. These are customers purchased from you once and you haven’t heard from in a long time.

    Start the Collection Process Early - Sometimes all it takes is an automated email reminder, or a copy of a statement, that can get the job done. This is the first step in helping to classify/segment your customer base. When the early reminder doesn’t elicit a response, these are the customers that may require personal contact. Always make contact with these customers no longer than the mid-point of your first past due period. For example if your terms are 30 days- make sure you personally contact your customer at day 45. Studies indicate that personal contact at this stage of delinquency can reduce that number of customers reaching 60 days, by as much as 85%.

     Follow-Up – If your receivable still remains unpaid by this point, and there’s no diligent follow-up, then you have effectively given your blessing to be paid sometime after 60 days. Talk to the right person at your customer’s office who can sign a cheque. Get a firm commitment as to a date when the funds will be received. Confirm your understanding of the arrangement while you have your customer on the phone and again via email right after you hang up.

     Pull The Trigger – if by 120 days you still have not received payment- it’s time to take further action. This is the point where most customer-service oriented creditors blink as this step can be uncomfortable. If an individual runs out of money – you can still collect from them when they get back to work. 

                                    If a company runs out of money – it’s dead.

At this point we recommend a Ten Day Demand letter be sent advising the customer that unless fall payment is received by a specific date, their account will be placed for collection.

To make the decision to take action easier for creditors, the Third-Party Collection industry has developed a Ten Day Demand letter which creditors can use free of charge. It works like this:

·         Letter sent to customer on collection agency letterhead giving the debtor ten business days to remit full payment directly to the creditor.

·         If the debtor pays the bill within the ten day period, there is no charge to the creditor.

·         Should the debtor pay only a portion of the bill or nothing at all, then their account rolls into the regular collection process of the collection agency. Funds paid after this date will be subject to your pre-determined fee agreement.

All creditors, who use this service, like the certainty that they made the right decision at the right time. If the customer fails to remit – then it was the right time to hire a third party.

To learn more about our Ten Day Demand System, click here and fill out the form.