How to Evaluate your Debt Collection Agency
Hi, my name is Adam Stewart, Debt Collection Expert and owner of Debt Recoveries Australia.
If you have already chosen your debt collection agency, the next step is to see if they are cutting it. If you need help in choosing a good agency, see this blog.
After you make a decision on a debt collection agency, you will almost immediately shift to an evaluation mindset. Are they performing? How do you tell? You may also want to be able to evaluate how their progress compares to your expectations and the industry averages. What factors are you going to consider that will allow you to determine whether your agency’s overall performance is meeting your expectations?
A lot of companies are purely focused on the money and are only interested in whether or not the debt was collected right? However, there are actually many different levels of performance for a debt collection agency. Knowing how to evaluate your debt collection agency’s performance will benefit you greatly by giving you more control over your accounts receivables.
Here are some things to look for to help you evaluate your debt collection agency:
1. Relationship and service
I put this one first because I believe it’s the most important and actually more important than the recovery rate. This, to me, is the most important ingredient for a good casserole. The debt collection agency that you hire should make you feel completely comfortable about the entire process. A good relationship should be open and communicative. You should be able to ask questions freely and ask your agency about things like commission rates, reporting, staffing, debt collection tools- even ask for help with your internal accounts receivables. A good agency will offer all this and more.
We have often had clients with a low recovery rate initially, however, because we developed a good relationship, we were then able to provide great service on the litigation-side of things. Its swings and roundabouts. Sometimes, it takes a while to find out what the client really needs and then to provide the services that fit the client.
2. Recovery rate
Show me the money right? Most clients are very interested in this vital KPI. Ask them what is their recovery rate and what percentage of the outstanding debts has your collection company been able to collect. Once again, this number can range quite dramatically based on the types of debts.
If you are working with multiple debtors, it can be helpful to group them in terms of location or how long the debts have been delinquent. Ask your agency what the recovery rate is across all the ranges and classes of debt you have with them.
3. Recovery time
The time that it takes the agency to recover your outstanding debts is another factor to consider. If you have only assigned one outstanding debt, how quickly was the agency able to recover it? If you have assigned them multiple debts, you can average these numbers together to get an overall evaluation. A good agency will be able to provide you reports with the average days your case are open and the average days it takes to close a case.
Keep in mind that every agency’s recovery times will vary based upon the types of debt they are collecting and the amount of information you are able to provide about the debtors.
4. Collection fees
This is probably something you spent time evaluating before you hired the company, but how well have they stuck to the rates they quoted you? If they say they are “no win-no fee”, any additional fees charged will be a red flag. Make sure they are upfront about their fees and charges. Make sure they explain their commission rate clearly to you.
5. Value-added data
Another way to evaluate your debt collection agency is based on the value that they are able to add to your collection process. Many agencies will be able to provide you with a vast amount of data about your outstanding debts. The agency should be able to coach you on how to use this type of data to improve your credit screening process and help with credit applications forms and templates.
Many debt collection agencies will also offer coaching or education for you or your staff in order to improve your internal debt collection or credit screening abilities. Does your agency offer coaching?
6. A/B Testing
For the scientific-minded credit controller out there, one of the best ways to evaluate how an agency is doing is to compare “apples with apples”. Pick two companies and do an even split of your debt cases between the two.
Comparing recovery statistics of accounts placed after the competition began will give you the best idea of which agency is better. Give the two agencies twelve months to show which is more effective and at the end of the term, grant the agency that outperformed the other 100% of your debt cases going forward.
In addition to treating you in a professional manner, your collection agency should also be more than willing to adjust their debt collection services to meet your needs. If you have any requests, are they met in a fast and appropriate manner?
As you can see, there is a lot more to evaluating a collection agency than how fast they collect your debts or what they charge to collect them. This is just a basic list that boils down to the fact that any debt collection company should make you feel completely comfortable with the entire process. If they don’t, you are probably working with the wrong agency.
What can they tell you about how they are collecting your debts? You want complete transparency. Does your agency have a web based platform that is available 24/7 that can provide you with detailed information? Can you easily obtain recovery rates and generate your own reports? Can you view down to the individual account level all the way up to summary information on your total portfolio, over any period of time you require? If not, ask them to provide this to your or change agencies.
If they do have an online service, is the platform easy to access and navigate for you to get this information? Do you have the ability to communicate with the collector if you have questions on an account? Can you export the data into any format you want such as Excel or PDF so that you can perform further analysis or use the data for in-house reporting?
For auditing purposes, you need a track record of remittances sent to remittances received. You need to be able to verify that all payments the agency has collected have been received and deposited.
Can you drill down to the individual account level and see in detail, how any individual account is being handled? Are the collector’s notes available and easy to understand? Can you use the account level report to easily access the collector either by email or by phone? Ask your agency if these are available.
9. Brand Representation
How does the debt collection agency represent your brand? If they are too aggressive, they may be making it impossible for you ever to do business with a customer again. Is this a professional outfit? If you do not feel you are being treated with respect, you may have a problem.
The agency needs to act as an extension of your brand and they need to keep in mind that some of your debtors are actually on-going customers.
Every dollar your agency returns to you puts cash back to the bottom line. This further promotes the fact that the credit department can be more of a profit booster, not just a cost control function. Outsource to your agency quickly, but then make sure you follow up on what they are doing and how they are going.
I hope these tips will help you to properly evaluate your debt collection agency. If they can’t give you most of it, you might want to look for somebody that can.
Debt Recoveries Australia is the expert at recovering your outstanding debts without the drama. For more information, email us at firstname.lastname@example.org or call 1300 799 511. Tell us your problems on Skype at “debtrecoveries”.