Selecting a collections agency

A collections agency represents your business to the customer. Put some consideration into the one you choose and make sure that you’re getting a good deal on high quality service.

Collections agencies usually charge a percentage of the amount recovered or a flat fee for a pre-determined service. This percentage may increase with certain variables, such as time elapsed since the original billing date. Fees average at about 40%. Though the fee sounds high, this arrangement can be a good deal. You owe nothing unless your money is collected. If the agency does collect the outstanding amount, you still net more than you would have if the bill went unpaid.

However, commission-based collection services favor large accounts and those that are easier to recover. Unless your overdue bill falls into this category, it may not get the attention it deserves. This incentive may in some cases lead you to seek an agency that offers a flat fee.

When evaluating an agency, ask about its success at recovering overdue accounts. Low rates will not benefit you much if the company has a poor track record. According to the American Collectors Association, the average agency successfully collects about 20% of the accounts submitted. Some agencies claim to collect more than 50%. Be sure to ask.

To find an agency you feel will represent you professionally, you can:

• ask about their collections procedures: letters? phone calls? what else?
• review copies of their standard letters
• find out whether the agency uses trained collectors
• request references from businesses similar to yours
• determine whether the company is respected by local lawyers
• verify compliance with licensing, bonding, and debt collection laws
• inquire about trade association membership

Find out when the agency will start work on your account, and how they will keep you informed about their progress. Some agencies collect from the customer directly; others instruct the customer to pay you. If the agency does the collecting, find out how and when you’ll be paid. Also, ask whether the company can affect the debtors credit rating in order to prompt customers to pay.