As Credit Managers, we regularly field solicitations from collection agencies. Your phone might be ringing right now, with yet another unbelievable offer.
One meeting with a collection agency remains memorable. I met a salesperson from a prospective collection agency for breakfast at a local coffee shop. I asked about collection rates and was told there were 3 tiers. The first tier was a 20% contingent collection fee. The second tier was a 17% rate available to companies that agreed to make this agency their “preferred” agency. No mention was made of the third tier rate.
Guessing the next move was mine, I asked about the third tier. The salesperson explained the third tier involved a 17% contingent collection fee with a 2% rebate paid quarterly on whatever amount was collected during the quarter. He added that this rebate could be paid “to my employer, to my employer’s favorite charity, or paid directly to me so that I could donate it to my favorite charity.”
I thanked the salesperson for breakfast [which had not yet arrived], got up and walked out. The lesson for me was this: If it looks like a bribe, walks like a bribe or talks like a bribe then it’s a bribe – even if it’s called a rebate. Relationships with collection agencies are tricky. For example, fancy dinners or lavish gifts [not to mention outright attempts at bribery] may create a sense of obligation that will outweigh your ability to make an unbiased and informed decision about which collection agency to partner with.
Consider using the 5 Cs in selecting a collection agency. The first factor is character, which refers to the agency’s reputation. Capacity and Capital involve an evaluation of the agency’s financial health as an indication of its ability to forward payments received from debtors. Collateral is not applicable… but Condition is relevant as it relates to the manner in which the agency collects, its professional affiliations, whether it is licensed and bonded, and the contingent collection rates quoted.
Michael Dennis’ Covering Credit Commentary. Michael’s website is www.coveringcredit.com.
The opinions presented are those of the author. The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors. Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.