Dealing With a Collection Agency

Once you have decided on hiring a collection agency for your credit collection, dealing with a collection agency has four different stages:

1. Selection
2. Hiring and setting up processes
3. Performance monitoring
4. Closure of the contract

Step 1 - Selecting A Collection Agency

Selecting a credit collection agency is perhaps the most important and difficult task. Some factors you must consider while selecting a collection agency are:

Experience and professionals, Geographical presence, Expertise, Fees and charging model and Customer references.

Step II - Hiring the Collection Agency and Setting Up Processes

Once you select the collection agency, the first two steps you have to take are:

Enter into a contract with the agency;

Set up processes on how you are going to communicate with the agency.
A contract is the legal document and your legal experts will, of course, prepare it correctly. Just make sure that you include important clauses such as confidentiality and non-disclosure. You are likely to pass sensitive information to the collection agency such as your account receivables, customer contacts, product and services pricing, etc. to facilitate faster debt collection. You want to be sure that this information does not fall in the wrong hands.

Setting up processes is a very important step in dealing with the collection agency. The success or failure of your partnership will depend a lot on how well-defined your processes are and how strictly they are followed. Important processes you need to define are:

Internal processes: You have to put in place a clear process on defining bad debt and referring the case to the collection agency. You don't want to refer the case to the collection agency before you make a sincere effort to collect the dues internally.

Information transfer: How will you transfer the information to the collection agency about your dues and defaulting customers, and how will you receive the information from your collection agency? Debt collection software can make the information transfer process easy and secured.

Third party dealing: As mentioned earlier, it is very important for you to ensure the security of the information you give to the collection agency. The collection agency may use one or more of its associated agencies to get information about defaulting customers. Hence you need to set up a clear protocol on how much information they can share with such third parties.

Communication: You need to set up single point contacts for communication within the company and the collection agency. In debt collection practices, the timing of communication is extremely important and hence it will go a long way in deciding the success of your debt collection process. Again, the importance of debt collection software cannot be overemphasized here.

Step III - Performance Monitoring

Once all processes are set, start monitoring the performance of the collection agency. This is an ongoing process when dealing with a collection agency. Important parameters to monitor are:

Quantitative

Number of cases referred to the credit collection agency and percentage of cases  successfully solved by them.

Percentage of debt recovered by the collection agency from all cases referred.

Percentage of debt recovered by the collection agency from solved cases.

Percentage of amount paid as fees/commission to the collection agency to the total bad debt cases referred to them.

Average number of days taken by the collection agency for full/partial credit collection.

Qualitative

How well do the collection agency professionals deal with your customers?

Has the collection agency followed all legal requirements mentioned in the Fair Debt Collection Practices Act?

Has the collection agency gone beyond the provisions of the Fair Debt Collection Practices Act?

Has the collection agency followed all processes and guidelines set by you?

 Step IV - Contract Closure

Hopefully, the selected collection agency will work best for you. But if it doesn't, then you need to transfer all your debt collection processes from the agency. You should remember the following important points when you are ending the contract:

- Confidentiality and non-disclosure clauses are applicable even after the end of the contract with the collection agency as well as its employees.
- The collection agency returns all documents related to your business and destroys all information related to your business from their data storage.

Following these simple guidelines will ensure that when dealing with a collection agency that it works best for you and your bad debts are minimized.