Choosing a Collection Agency? How to Find the Best One for You

By Karina Fabian
Business.com / Financial Solutions / Last Modified: June 1, 2017

When your clients don't pay, you need a good collection agency to get your money. With so many to choose from, make sure you pick an effective and reputable agency.

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In an ideal world, everyone would pay their debts on time and in full, but reality does not work that way. As a business, there are steps you follow to get paid. Send a second notice with clear payment instructions, just in case the first one got lost. Contact the debtor personally to see if there's a problem, like an unfinished task, that needs resolving before they pay. In some cases, the threat of legal action or a lien on the property will spur the debtor into action. However, the longer the collection process goes on, the less likely you are to get paid.

If, however, you know you are dealing with an unscrupulous client or have tried unsuccessfully for 60 or 90 days, then you may want to look at collection agencies. Collections agencies have professionals trained in collection tactics and negotiations. They are governed by federal law, and the best belong to organizations that have rules of ethics. There are over 5,000 agencies, from local and industry-specific services to large national services that handle all kinds of accounts.

With so many to choose from, it's important to pick the agency that will serve you best. Here's what to look for.

Fees

The first thing to know about working with a collections agency is you will not get back 100 percent of what is owed you. Two-thirds of the debt is average.

If the debt is less than 90 days old, some collection services charge a flat pre-collections fee. After that, they charge a percentage of the debt. This ranges from 10 to 50 percent, depending on the amount owed and how long it's been unpaid. In general, the smaller the amount and the longer it's gone unpaid, the higher the percentage. In some cases, unfair as it is, it may be cheaper for you to just let it go.

Editor's Note: Looking for a collections solution for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

 

Reputation

The debt collection agency represents you; its actions will reflect on your company. The Fair Debt Collection Practices Act protects debtors from harassments, including threats, abusive language, revealing the nature of the debt to third parties like family or co-workers, calling outside of approved hours, and failing to cease communications on request. Look at the following areas to guage the agency's reputation and compliance with these protections.

  • Lawsuits:While isolated incidents happen, if the collections agency has been sued, it can be a red flag.

  • Better Business Bureau: In particular, unanswered complaints should be a warning sign.

  • ACA affiliation: The Association of Credit and Collection Professionals brings together third-party collection agencies, law firms, asset buying companies, creditors and vendor affiliates under a set of common ethics.

  • CLLA affiliation: The Commercial Law League of America is a leading professional organization of attorneys who concentrate their practice in the areas of commercial law, collections, Uniform Commercial Code bankruptcy and reorganization.

  • CCAA affiliation: The Commercial Collection Agency Association members are agencies certified by the CLLA. The association works to elevate the standards of the industry by providing educational, legislative, promotional and administrative services for its members.

  • Specializations: Some industries, like medical, construction, utilities, mortgage and auto loan companies, have laws and special circumstances that apply to debt collection. Ask if the agency has worked with your type of business and what extra considerations it requires.

  • Reviews: Look online for reviews of the company. While debtors probably won't speak glowingly about the agency sent to collect their money, you can see if there were extreme complaints, and of course, the businesses that hire them will report on their satisfaction with the debt collection.

Other things to look for

  • Insurance: Called errors and omissions insurance, this covers expenses for if you go to trial and if you lose. Ask to see the proof of insurance in case the debtor takes you and the collections agency to court.

  • Partnership with a legal service: This saves you the time of finding a separate lawyer if you need to resort to a lawsuit to get your money.

  • Skip-tracing capabilities: Skip-tracing services track people down when their contact information is false or invalid.

  • Personalized collections processes: The best agencies take time to learn about the debtors to reach them in the most effective way possible.

  • Online portal: The best collection agencies have an online client portal where you can log in to see the progress on your collection.

  • Training: Has the staff been taught negotiation techniques, or do they read from a script?

  • Management oversight: Calls by debt collectors should be recorded and monitored. The management should regularly evaluate claims for strategy and progress.

If you don't get paid, you can't stay in business, but collecting money from a stubborn or unavailable debtor can eat into your time, energy and profits. Reputable debt collections agencies can help you get at least some of the money you deserve.

Image from Iakov Filimonov/Shutterstock

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Karina Fabian
Karina Fabian is a full-time writer and mother of four. By day, she writes reviews of business products and services for Top Ten Reviews and articles for Business.com, Business News Daily and Tom’s IT Pro. As a freelancer, she writes for Catholic educational sites and teaches writing skills. She has 17 published novels of science fiction and fantasy. Learn more at http://fabianspace.com.

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