Debtor Referral to a Collection Agency

Some agencies work on a flat fee arrangement. Most commercial collection agencies operate on a contigent fee arrangement meaning that if nothing is collected, the creditor owes the third party collection agency nothing.  Contingent collection agency fees vary widely, even when their services and their collection results do not. There are a wide array of collection techniques used by collection agencies.  Some agencies mail out dunning notices.  Other agencues make a few collection calls.  A few collection agencies send a collector to the debtor's place of business (one or more times) to discuss the past due balance.  It is important that whatever collection agency you select have these characteristics:

• It should be professionally managed.
• It should be experienced.
• The agency should be licensed and bonded.
• Collectors employed should be screened for their temperament and their communications skills.
• The agency should act in your best interest, and not its own.
• It should be affiliated with one of the nationally recognized groups that offer accreditation to collection agencies.
• The collection fee structure should be competitive.
• Collections should be done on a contingency basis.
• The agency should provide periodic written updates on its collection efforts.

Agreements should be put in writing covering these issues:

•  How soon after the collection agency receives payment the creditor company will receive its money.
• That no settlement or payment plan will be made with a debtor without express, written approval from the creditor.
• That no form of incentive or gratuity will be offered or given to any member of the credit department for using the collection agency.
• That all communications and correspondence with the debtor will be handled in a professional manner and that threats and violence will never be used to collect balances owed.

One final comment: Once you have placed an account with a third party collection agency, do not become part of the negotiation process with the debtor.  Debtors sometimes call the creditor to try to negotiate a payment plan without involving the collection agency.  The only reason the debtor has to contact the creditor in this scenario is that the debtor is feeling the heat from the collection agency.  Therefore, the worst thing the creditor company can do is intervene / interfere with the collection agency's work.  The debtor should simply be told that fair warninig was given and that the account is now in the hands of the collection agency and any negotiations should be done directly with the agency.

© 2010 by Michael C. Dennis.  All Rights Reserved.  Mr. Dennis is a business consultant and the author of several books including:  "Credit and Collection Handbook."  Please contact him with questions or comments at mcdennis13@yahoo.com