The reality of the third party collections world is that it isn’t a huge fan of transparency. If you are outsourcing your receivables you may be one of the lucky creditors that is with a great agency but you wouldn’t even know it. Additionally, if you are on top of your third party reporting and watching ever dime, you may still only be with a good and not a great agency. It’s not your fault, because in the end nothing beats the apples to apples comparison, but more on that later.
Few mechanisms exist to aid you in your search and validation of a collection agency. Word of mouth, B.B.B, and various associations are all a good start. Nevertheless, the aids that are available don’t provide a clear picture as to what you really have. With the lack of meaningful data you are forced to piece all of this information together yourself. It is no wonder that most creditors don’t know if they got a fair shake or not, I know from my own anxiety.
Good vs. Great
Sadly not all collection agencies can be great, and while the majority are good, some can be downright awful as well. So what do you have? Our advice is to start with the numbers. Accreditation, compliance and your buddy’s thumbs up all have value but at the end of the day you need measurable results. The third party world can be viewed as a contact sport and just like most sports the difference between good and great can be something as minute as a percentage point here, or little bit of extra effort there.
Each agency has strengths and weaknesses, the key is finding out which strengths are a good fit for your business type. If your business is in a field that requires in depth knowledge of your businesses inner workings, then you need to target an agency with that industry knowledge. Furthermore, depending on your size of annual receivables, the size of the agency and the exposure to collection action that each debtor receives becomes a factor. Each creditor has its own unique needs and learning what separates your needs from other creditors in other industries is a good indication of how difficult it can be to find the right fit.
The honeymoon is over
So after trying out a new agency you decide to increase their workload. You measure the results a few months later and you pat yourself on the back after you see an increased recovery rate. Another six months goes by and the agency that was previously your dragon slayer is now not performing as before, things are slipping. What happened? To start, the end to the honeymoon phase is a completely normal thing to see. It’s human nature. Every collection agency knows that they need to prove themselves in the first couple quarters or they are out the door. Furthermore, it may also be likely the debt that you passed to them was different six months ago in a few different ways. A few different factors could have made that particular set easier to collect, placement type, age of debt, claim size, or seasonal volatility, etc. The only thing you can do for your own due diligence is start a dialogue with your third party and do your best to compare their efforts vs. other agencies. Start your discussion with a valid comparison.
A.R.M. agencies are cruise ships
Accounts receivable management at the debtor (or the folks who aren’t paying you) level is a relationship based activity. These relationships take shape in the form of on going daily pressure and a consistent presence. Meaning an agencies collectors build relationships, some good, and some bad, with each debtor to generate an outcome. I won’t spend a lot of time talking about the best practices of each agency because that is its own discussion but one thing is common amongst all agencies, time. Changes take time, you wont see the fruits of your labor immediately. Going back to our honeymooning agency, let’s say you start a dialogue about what you want to see, and then 60 days goes by and nothing has changed. You may be contemplating dropping that agency and vetting a new one. What you don’t see is that your reformed agency has changed its course based on your requests but it takes time to turn the ship. Give the changes time and you may be happy with the outcome. With that said, don’t make the mistake of setting it and then forgetting it.
We get a lot of questions about what separates the best agencies from everyone else. The answer is usually of summarization of the things mentioned above but the elite agencies out there separate themselves in the guidance category. Good agencies realize that your business is going to generate bad debt no matter what. Additionally, if they choose to help you achieve your goals vs. capitalizing on the easy pickings then I would say you have a good thing going. Guidance is a rare commodity and it can come in a lot of difference forms for each industry. A common tool used is an early placement letter that your in-house team can utilize early in the collections cycle; others can be as simple as access to collection best practices, guidance with larger or difficult accounts, or even credit protection.
Finding the right fit
Putting the recovery of your company’s bad debt in a third party’s hands can be a difficult decision. Free resources now exist to provide you with the transparency needed to make a sound decision at recoverity.com. You can now compare the rates of collection agencies nationwide for your particular outstanding bills in a few minutes.
What’s more is that you can learn a great deal from the each agencies reviews, so you can get a feel for how they did for other creditors (review portal launching Fall 2014). All reviews can be filtered by location and industry type providing you with a strong comparison to shop with.
Recoverity offers full transparency of collection agencies while providing creditors an “apples to apples” comparison in a confidential and secure portal.