Knowing Your Needs
The first step in accurately assessing your collection agency’s performance is determining what factors in the relationship are most important to you and your company. Of course, bringing in the cash is going to be high on the list. But there are other qualitative and quantitative components to consider.
Quality factors to consider when assessing your commercial collection agency:
- Your relationship with the collection agency and service personnel. Are they friendly and helpful? Do they listen to you and take your concerns seriously? If you raise an issue, is it handled quickly and appropriately?
- Professionalism of collectors. How do the agency’s collectors treat you and your staff? Just as important, how do they treat your debtors? You may want to resume business with some debtors once the past due account is resolved. Your customers, even those that have occasional cash flow issues, are your most valuable asset. Does the collector’s attitude and behavior toward your customer strengthen the relationship or destroy it?
- Quality and timeliness of reporting. Are you getting updates within reasonable time-frames? Are the updates understandable? Is there a real-time web site that allows you to check on the status of your accounts yourself?
Recovery rate should be a major factor in your analysis. Typically, recovery rates are calculated on the entire portfolio, regardless of age at placement, date placed, average size of account, location of debtor, etc. A recovery rate calculated in this manner, however, does not give the most accurate assessment. Consider requesting the agency provide recovery rates based on the following:
- Recovery rate on claims that have been worked at least 60-90 days. It’s not fair to make a judgment on a recovery rate that includes accounts that have just been placed. Allow the agency a reasonable amount of time to work the claims. When selecting what you consider a “reasonable” amount of time, don’t forget to consider extenuating factors, such as age at placement and complexity. Older accounts and those with complex issues often end up with attorneys, increasing the length of time needed to collect.
- Recovery rate by location of debtor. This is valuable particularly when international accounts are included in the portfolio. If you have a significant number of foreign debtors in your collection portfolio, segregate recovery rates by country to get a fair picture of the agency’s capabilities.
- Recovery rate by each of your divisions or locations. The agency should be able to set up your account so that you get an overall view of the results, and each division or location gets accurate data for their piece of the portfolio. This can provide essential intelligence into the effectiveness of each division’s internal processes. For instance, if a particular division is receiving significantly higher recoveries than the rest of the company, they might have better internal processes that can be duplicated to improve the overall percentage collected.
Stage of Recovery
How accounts are recovered has a huge impact on the price you pay for collection – and cost, though by no means the most important factor, there is another thing to consider when evaluating how your agency is performing. If the agency is able to collect your accounts in-house, your contingent fees will be less than if an attorney is brought into the picture
Analyzing at what stage (In-House, Attorney-Amicable, Suit, Judgment) your accounts were collected can provide valuable insight into how your agency is handling your portfolio. If the majority of your accounts end up with an attorney, perhaps the agency is too quick to give up working them internally. Or, perhaps you’re the culprit. The accounts might be highly disputed due to some internal deficiencies, or you might be waiting too long to place them.
Time-frame to Recovery
Another factor you’ll want to consider is how long, on average, it takes your commercial collection agency to collect your accounts. As with other quantitative factors, this information can shed light on both the agency’s capabilities and the quality of your internal processes. If your target for collection is three months, but the agency is taking six, your next step is to discover why? Look at the age of your accounts at placement, the amount and quality of your internal collection efforts, and the stage at which the collection agency is either collecting or closing the accounts as uncollectible.