With 2009 shaping up to be a difficult year financially for nearly all businesses, this might be the first year you will need to consider hiring a commercial collection agency. Though there are about 4,000 firms that collect delinquent business debt, picking the right one for your business may mean recovering significant cash that can be injected back into your business, while keeping good relations with your customers.
The first key to picking a successful collection agency is knowing what industry associations they belong to and are active in. The three main commercial B2B collection associations are: Commercial Law League of America, CCAA -Commercial Collection Agency Association, International Association of Commercial Collectors.
Most reputable collection agencies belong to one or more of these associations. Membership requirements for several of the associations are very strenuous. For example, to become a certified member of the Commercial Law League of America (CLLA) an agency must comply with nine major requirements including being in business five years or more, keeping client’s collected funds in a trust account and posting a $300,000 surety bond to protect creditors.
After you have established a firm’s credentials and association memberships, find out what their philosophy of doing business is. Lonnie Larson, CEO of D&S LTD, an international collection firm, believes treating his client’s debtors as he would like to be treated obtains higher collections while maintaining good relations between clients and their debtors. He calls this a “human being to human being” approach. D&S represents clients from Fortune 500 companies to small company operations.
Other characteristics of a compatible collection agency are:
- Long tenure of collection agency staff
- Having real-time collection information online for the client to review
- Being able to easily retrieve and listen to all recorded conversations between collection agent and debtor
- Having a collection program customized for your Business
- Having periodic face to face meetings with the agency management
- Being able to take back one or all of your accounts at any time
Larson advises once you have picked an agency to work with, make sure your sales and credit management are on the same page as far as collection culture. One way to implement a collection strategy is to “draw a line in the sand” as far as what will be handled in-house verses that which will be turned over to the agency. Some companies draw this line at under 90 days past due and over 90 days. Once you have drawn the line, live by it because it is easy for the line to creep because of sales pressure.
Occasionally companies will find they don’t need a long term outsourced collection strategy but can benefit from first party outsourcing of A/R management. A six month process may be all that is necessary to clean up delinquent accounts and train in-house staff.
A well designed collection program should start showing an impact in 30 days and will often help “rehabilitate” past due accounts so they may again receive trade credit.
Larson’s final advice is to spend the time necessary to pick an agency that has a philosophy that matches yours and subscribes to a high level of ethics.