Commission Rates vs. Recovery Rates
Although it may seem as though commission rate is the major factor in choosing an agency, in actuality, one should be more concerned with their rate of recovery. Net gain may be greater using an agency with a higher commission rate if the agency´s rate of recovery is high. For example, if you place $10,000 at a rate of 30% and $5,000 is collected, your return is $3,500. However, if you place $10,000 at a rate of 40% and $8,000 is collected, your return is $4,800.
Memberships & Credentials
When choosing an agency, one should consider the organizations to which it belongs. An agency should hold memberships in national and state organizations such as the American Collectors Association, the Tennesssee Collectors Association, and the Healthcare Financial Management Association. Experience is another factor to consider. Determining how long the agency has been in operation may be a good indication of their quality of service.
No one knows what the future holds for your company, so it is a good idea to choose an agency that is capable of providing more than just collection services. Are they capable of handling you accounts receivable should the need arise? Do they provide interim management services? Having all of your needs met by one agency will allow your office to run smoothly and efficiently.
The agency you choose should be familiar with collecting the type of accounts that you are going to place. For example, if you are in the healthcare industry, the agency you choose should be able to file insurance and have a compliance program in place. If you are placing liability accounts, the agency should be able to file liens in a timely manner.
Service & Fees
Additional fees can add up over time, so be certain that you will not be charged fees over and above the commmission rate. There should be no flat monthly fee and no charge for skip tracing, insurnace filing, and other similar services. Also determine if the rate of commission is based upon the amount of placement or upon the amount of collected monies.
One method of determining if an agency is reputable is to check references. Choose other creditors in your industry who currently use their services. Determine their level of satisfaction with the agency and the services they provide.
Be sure the employees receive training and education. In third-party collections, strict adherence to the FDCPA is a must. A well trained, professional collector is the key to successful collection of accounts.
If the accounts you are placing have a small balance, you must be certain that the agency does not "skim" accounts. Some agencies do little more than send a letter on a small balance account before labeling the account as uncollectable. Also determine if accounts with bad information are skip traced or simply discarded as uncollectable.
Be aware of the agency´s policies regarding litigation. At what point in the collection process is an account presented for litigation? Does the agency have an in-house attorney concerned solely with the collection of their accounts?
Visiting the office may be a good way for you to become familiar with the agency´s procedures for collecting an account.