How to Choose a Commercial Debt Collection Agency

If you own a business and are owed a debt, collecting it yourself can prove to be a difficult process. Instead of trying to track down your debtors and recovering the amount owed, you might consider hiring a commercial debt collection agency. These agencies will work on your behalf to track down your debtors, collect the amounts owed and return it to you. Before you decide if hiring a commercial debt collection agency is right for you, it can be helpful to learn more about what they do, how they do it and what fees they may charge.

Part 1

Part 1 of 4:

Determining Your Collection Needs

1
Assess your need for a collection agency. Collection agencies help businesses receive payment for debts that are owed to them by their customers. These agencies are typically called in when an account goes unpaid for a certain amount of time past the payment period allowed in the contract with the customer. Businesses that have a significant number of unpaid accounts or a large amount of money lost in these accounts may find that hiring a collection agency is an essential part of doing business. In general, you will need to hire a collection agency if:
- You are owed money by a new customer (one with whom you have no business history).
- A customer has previously agreed to a payment plan to reconcile their agent but failed to follow through.^{[1]XResearch source}
Collection agencies are split broadly into two types based on who they collect from: consumer and commercial. Commercial collection agencies specialize in collecting from businesses, while consumer agencies focus on individual people. However, some agencies are capable of effectively handling both. If you primarily have clients of one type, you should hire a specialize agency. If they are split fairly evenly, consider hiring two separate collection agencies or one that can handle both.^{[2]XResearch source}
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Another important factor to consider is the age of the debt you are collecting. Collecting debt that is 120-180 days past due is completely different than collecting on newly delinquent debt. Assess the average age of your overdue accounts. This figure can be used later to locate an agency that specializes in that age of debt.^{[3]XResearch source}
Typically, a large company with a large number of debts or high debt value will want to work with a similarly-large collection agency. The same goes for small businesses. In most cases, smaller agencies can handle up to 100 annual claims for amounts under $1,000. On the other hand, you'll have to hire a large agency if you have over 1000 annual claims or your claims are typically for amounts over $25,000.^{[4]XResearch source}
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Part 2

Part 2 of 4:

Finding the Right Agency

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Ask which services the company offers. Once you find a potential commercial debt collection agency, you should learn more about the specific services they offer. Not all agencies will offer the same services, making some a better fit than others. Investigate the services an agency offers to learn if it's the right one for your business.
- Many services will offer to track down individuals that have relocated in an attempt to avoid repayment.
- Some agencies will offer to forward your account to other agencies if a debtor has fled to another area.
- Agencies may offer additional services such as preemptive debt collection or consultations.
2
Understand what the focus of the agency is. Not all commercial debt collection agencies will have the same areas of focus and expertise. There may also be differences in the agency's focus based on the size of that agency. Do some research and learn more about the agency's focuses to learn if it is a good fit for your needs.
- You'll want to find an agency that focuses on an area similar to the focus of your business.
- For example, if you work in the medical industry, you'll want an agency that has previous experience recovering debt in that industry.
3
Find an agency with the right capabilities. Different agencies will have different capabilities based on their size, location, history and professional direction. It's a good idea to learn more about what a commercial debt collection agency can do for you before working with them.^{[5]XResearch source}
- Try to find a collection agency that is the same size as your business.
- You'll want to make sure the agency is large enough to handle the amount of cases you have.
Another thing to look for in an agency is their approach to collections. Are they stern but polite or do they use fear and intimidation to achieve their collection goals? Keep in mind that your collection agency is an extension of your own business when they interact with your customers. A heavy hand can run off good customers who are experiencing temporary difficulties and can even subject you to potential liabilities.^{[6]XResearch source}
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Part 3

Part 3 of 4:

Checking the Agency's Qualifications

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Make sure the agency is licensed. Commercial debt collection agencies will need to be properly licensed before they can begin working with clients. If an agency you are considering isn't licensed, you'll want to look elsewhere. Before working with a debt collection agency, always make sure that they have any necessary and up to date licenses.
- Not all states will require an agency to be licensed.
- It is acceptable to ask for a copy of the agency's license.
2
Check the agency's qualifications and credentials. You'll want to make sure that the agency you are considering is properly certified and has the necessary credentials. Unfortunately, there may be some agencies that aren't qualified or properly credentialed, creating a potential liability for your business. Always ask to see evidence of an agency's qualifications and credentials before hiring their services.^{[7]XResearch source}
- Your agency must be insured.
- Try to look for an agency that is bonded.
- Look for memberships in trade associations, such as the ACA.
3
Check up on the agency's policies and ethics. Debt collection can be a difficult process and you will want to make sure that the agency you're working with does so ethically. It's also a good idea to make sure the agency complies with federal standards for debt collection. Knowing that the agency will ethically collect your debts can help protect your business and give you peace of mind.^{[8]XResearch source}
- The agency you work with should comply with the FDCPA policies.
- Check with the better business bureau to learn if the agency has had any complaints filed against them.
4
Learn about the agency's past experience. Learning more about an agency's past successes and experiences can be a good way to judge if they are right for you. You'll be able to learn how long they've been in operation, how well past clients have rated their services and how likely they are to provide valuable services for you.^{[9]XResearch source}
- The agency you're working with should have a long history of success.
- You can ask about specific rates, such as the rate that the agency is able to reclaim debts.
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Part 4

Part 4 of 4:

Working With Your Agency

1
Ask how you can track your case and stay in communication. Most commercial debt collection agencies will offer convenient ways for you to track their collection efforts. You should also be given a way to contact the agency whenever you have a question or want an update on your case. Ask about how you will receive your reports and how you can contact the agency before completing the deal.^{[10]XResearch source}
- Many agencies will offer the ability to check on your cases online, anytime.
- If you have a large amount of cases, you'll want to make sure you can receive online reports when you need them.
2
Understand the agency's fees and costs. Once you've found an agency that meets your needs and is qualified to work, you'll want to ask about their billing process. The exact billing policy will vary between agencies. However, there are two main methods that commercial debt collection agencies will use to collect their fees:^{[11]XResearch source}
- Some agencies will offer a one time flat-fee.
- It's common for agencies to take a percentage of any debts collected. The exact percentage will vary depending on the agency you are working with.
When setting up a contract with your collection agency, make sure they know your boundaries for collecting debt and dealing with customers. For example, can they discount debt for payment? If so, by how much and at what point? Can they take the creditor to court if they continue to ignore collection notices? Think about how you would like your customers to be dealt with and adjust your expectations for the collection agency appropriately.
4
Take advantage of additional benefits. Some agencies may offer additional benefits that you or your employees can make use of. These benefits can help you and your team learn more about debt collection and are often a great demonstration of the agency's commitment to customer service. Ask about these examples of extra programs to get the most out of your commercial debt collection agency:^{[12]XResearch source}
- Training programs.
- Educational newsletters
- Webinars
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