It can be tempting to choose a collection agency that offers the lowest rate but collection services are not a commodity.
One agency may take on a case at a rate of 15% while another may quote a rate of 30%. Either way, if the collector collects zero on the debt, the outcome is zero … for you and for them. The rate you care about isn’t the rate the agency charges – it’s the net recovery rate that matters.
While it may be tempting to select a Collection Agency based solely on the rate they’ll charge you, there are legitimate reasons why some companies charge more. Consider this:
Licensing
Our last post outlined the reasons to only partner with a licensed agency. Agencies that are licensed are held to a high standard of conduct and operate within the boundaries of the law. They also invest in the resources it takes to monitor their collectors. This is added protection for you and your business. Licensing isn’t cheap. There is time and money involved in the process of obtaining and maintaining the proper licensing.
Experience
Collectors with years in the business produce a more profitable and consistent outcome for their clients. They have long since learned what works and what does not, which saves time and gets clients paid. Experienced collectors cost more but the return is greater. For instance, at C2C Resources, our average collector has over 18 years experience.
Account Management
It’s not uncommon for agencies to spend their time on the easier and big money accounts while turning the difficult accounts over to an attorney. Why? Because they up your rate when an attorney takes over. Basically, they pour their time and resources into the easy accounts while still getting paid for the more difficult ones they don’t even work on! In the end, the rate you paid won’t be the one you start with. Agencies that assign 3 – 4 collectors to work each account ensures that the more difficult accounts get the attention they need.
An agency that has a dedicated team that focuses on small balance accounts and limits the number of accounts a collector works is an agency worth considering. These agencies have learned something valuable in the industry. They’ve learned that by working small accounts with efficiency, they have a better overall relationship with their client. This caliber of agency fully expects to lose money on smaller accounts. They know that by keeping a big picture perspective, their client relationships across the board will be balanced and solid and therefore, long-term and profitable. It’s a fact: it costs more money in the short-run to use this strategic approach to collections but over time, it’s a more profitable approach for both the agency and the client.
Remittance
Agencies should remit quickly. If you’re considering a Collection Agency that holds onto your money (only remitting monthly) then re-consider. You should be collecting interest on your money. And yes, it DOES cost an agency to remit weekly. The ones that do will cost more to partner with but they will get your money in your hands more quickly.
Communication
Keeping you informed is critical to the process of collections. Agencies that invest in personnel and technology are able to deliver this type of communication. Software costs money, but it’s another important and crucial expense for an agency.
In the end, your choice of a Collection Agency comes down to the dollars that come back to you and not their percentage rate. When interviewing an agency, ask them if they are licensed. What is the experience level of their collectors? How do they handle small balance accounts? How often do they remit? How many collectors touch each account? What are their communication policies? The answers will help you understand their rates so you make the best decision when choosing an agency.