Evaluating Your Outside Collection Agency’s Performance, By Sam Fensterstock

At some point you were responsible for selecting a new outside collection agency (OCA) and started providing them with past due accounts for collection. Now, one of the executives in your company’s financial department wants to know how the OCA is doing. He wants you to justify your selection. What factors are you going to consider that will allow you to determine whether the OCA’s overall performance is meeting your expectations or they are falling short?

There Are Two Types of Factors to Consider – Objective and Subjective

In evaluating an OCA’s operation there are many factors that have to be considered. First you have to determine the period of time that you want to evaluate. Most OCA’s would recommend that you us e a minimum of 12 months of placements with the review being done 90 days after the last file is placed. Some can be measured directly, like recovery rate and collection fees. Some cannot, like quality of the paper place due to factors such as age of debt and if it is disputed or not. Other factors like OCA personnel interaction with both you and your accounts. All are vitally important with respect to the OCA’s response to your needs and their results. So, let’s take a look at both types of factors that we need information on, under the assumption that once the information is gathered and evaluated, you will be able to justify about how well the OCA is performing and how your decision to use them has benefited your company.

Objective Factors

The prime objective factor that can be easily measured in the collection industry is the recovery percentage. How much you have turned over vs how much the OCA have collected. How is the OCA doing in collecting the accounts you have given them? What can they tell you about how they are doing it? You want complete transparency. Does your OCA have a web based platform that is available 24/7 that can provide you with detailed information? Can you easily obtain overall gross and net recovery rates? Can you view down to the individual account level all the way up to summary information on your total portfolio, over any period of time you require?

Additionally, is the platform easy to access and navigate for you to get this objective information? The web platform should be easy to use and provide you with all if the information you need to evaluate and track your OCA’s performance. You should also be able to query your data by account, by date, or range of dates, etc. Can you review all collector notes and communications? Do you have the ability to communicate with the collector if you have questions on an account? Can you export the data into any format you want such as Excel or PDF so that you can perform further analysis or use the data for in-house reporting?

What do you need to know?
• What is the quality of the paper that you have been sending to your OCA, how old is the debt and is the customer still open and operating? It’s almost impossible for an OCA to collect from a company that is out of business or in bankruptcy so strong consideration needs to be placed on the accounts being sent to your OCA and are they remotely collectable.

• For the accounts that are collectable, for the total time you have been doing business with the OCA, and by year and by month, and by account, what is their gross and net recovery returns (net is after adjustment for bankruptcies, uncollectable accounts, etc.)? This is an important number as it allows you to compare their results to published national averages as well as industry averages.

• Where does your OCA stand with your accounts today? You need a status report that lets you know how they are doing right now. What does your current portfolio look like, how much has been collected so far, in total, and by account. To the extent status codes and descriptors are used, what is the status of each account and what future activity anticipated.

• You need a payment history that shows the time to recovery from turnover to your receiving a check. Can you compute average recovery time so that you can do some cash forecasting based on the age of your portfolio?

• For auditing purposes, you need a track record of remittances sent to remittances received. You need to be able to verify that all payments the OCA has sent you have been received and deposited.

• All of the information should be exportable and sortable in to multiple formats. Can you sort a report by field from high to low, from low to high, or alphabetically, or by range of dates or by status code or by a combination of fields?

• You might also want your OCAs to provide any of their reports based on a specific subset of your accounts, such as by period of time the OCA has had the claim, by customer type, or by age past due at the time of placement. Any breakdown for a subset of accounts should be possible as long as you can extract accounts from the portfolio by some defined characteristic and then prepare a specific report just from the extracted accounts. Do they have ad-hoc query capability?

• Can you drill down to the individual account level and see in detail, how any individual account is being handled? Are the collector’s notes available and easy to understand? Can you use the account level report to easily access the collector either by email or by phone?

• Can you listen to recording of collectors calls on your files?

This is just some of the objective information you need to properly evaluate an OCA. If they can’t give you most of it, you might want to look for somebody that can.

Subjective Factors

These are qualitative items that can’t be measured with a number, but are just as important as the objective factors in evaluating an OCA’s performance. These are feel good items that measure your comfort level with the OCA, and if you are not comfortable with the objective factors regardless of how good they are, he OCA may not be sufficient for you to want to continue to do business with them.

What Subjective Factors Are Important?

• How they treat your accounts is critical. How does the OCA represent your brand? If they are too aggressive they may be making it impossible for you ever to do business with a customer again. Every once in a while an account may suffer a business downturn, so you don’t want to let an infrequent problem eliminate your chance of ever doing business with the customer again. And you certainly do not want to hear from the account’s lawyer that your OCA may be in violation of fair collection practices.

• Is this a professional outfit? If you do not feel you are being treated with respect, you may have a problem. The OCA needs to respond promptly to your emails or telephone calls. If you need some particular service, do they provide it without a hassle?

• Is the OCA easy to do business with? Are they flexible and do they have the ability to meet your needs, no matter those needs are? Working with and OCA many times is the last thing on your mind, but as you need them to manage a portion of your AR are they easy to work with?

• Do you like doing business with them? Do you like the people at the OCA? After all, collections is a “people business” and personal relationships are very important as they allow for far better communication and it’s easier to work with somebody you like than somebody you don’t. The chances of an OCA meeting your needs are far better if the parties get along than if they do not.

• Can they provide you with professional advice that can improve your in-house operations? An OCA should be able to give you an independent evaluation of your internal operations. While making you more efficient may cost them some short-term cash flow, it should guarantee your relationship for the long-term.

• Can you utilize advice from your OCA and their alliances to assist in your daily routines? Can you maximize your relationship and obtain information provided to protect your company from unexpected loses?

In Summary

As you can see, the review of your OCA’s performance is both objective and subjective. If you place business with your partners, both areas really need to be evaluated and should be on a consistent basis. While write-offs at most companies are insignificant, although expected, every dollar your OCA returns to you puts cash back to the bottom line. This further promotes the fact that the credit department can be more of a profit center, not just a cost center.

Sam Fensterstock is Senior Vice President, Business Development, for AGA, a leading commercial collection agency based in Melville, NY. He can be reached at (631) 425-8800 or samf@agaltd.com.

Collections in the Digital Age: Technology, Outsourcing, and Compliance, by Eddy Sumar

‘Collections,’ ‘collectors,’ ‘collection agencies,’ ‘collection attorneys’: words that evoke strong emotions, sometimes even terror, in the hearts of uninformed debtors. Robocalls, automatic dialers, dialing for money, calling centers, SMS, texting, e-mailing, invoicing, phone calls, and personal visits—some of the avenues that companies pursue to collect their precious asset known as accounts receivable. When we look at the landscape of debt collection, we can see three things that beckon our attention: technology, outsourcing, and compliance.

These three areas have a great impact on people on all sides, creditors, intermediaries or third parties, and debtors. Let us look at each of these three areas separately.

Technology: Technology is a blessing, but it has side effects. When technology is employed, people lose their jobs. Technology leads to higher productivity at the beginning of the process, but it has long-term negative consequences. Digital technology, machines and robocalls do not satisfy the desires for human interaction. The fact is that technology should enhance the human factor, not diminish it. Technology should help us humans to produce more so we can have more time to interact and build the goodwill and loyalty. So the short-term need is to curb the negative effects of the technological factor in collection.

Outsourcing: Another factor that complicates collection is the outsourcing of debt collection to companies that do not understand the power of customer service and preserving customer and debtor goodwill. The calling-center mentality in collections is unempowered. It follows a certain script and cannot deviate from it. This railroad track mentality usually leads to derailment. The short-term benefits to the bottom-line will ultimately lead to long-term consequences that both eat the top-line and erode the bottom-line.

Compliance: As highlighted in the recent reports from the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB), consumers are being hounded by unethical collectors and unscrupulous collection agencies. These dial for money at all cost, intimidating the debtors with lawsuits and other methods that convey the thought of threatening their livelihood and dignity. To them, it is the money that counts, not the individual. To them, the debtor is totally at fault and they approach the debtor in a manner not fit for human dignity. The result is that the reputation of collectors and the agencies they work for are negatively affected. They become something to fear and avoid. The good news is: the collection industry is still filled with good law-abiding collectors. But unfortunately, it’s the bad apple that corrupts the whole bunch; the little poison that makes the refreshing glass of water on a sweltering day undrinkable. With technology the offense could easily be amplified. Bad collectors tend to hide behind their technological gadgets and screens, thinking that they can never be found in cyberspace. This new digital landscape allows bad collectors to abuse debtors, hurling at them every insult, thinking that the path of offense leads to collection success.

All of the above issues highlight the significance of compliance, which is compliance with existing codes and regulations, but above all compliance with the codes of human decency.

So, how can a company thrive in an environment of constant technological change? How can a company outsource its collection function without affecting the long-term profitability? How can a company be compliant?

The answers lie in a simple acronym: COLLECTOR.

The word ‘COLLECTOR’ embodies certain key qualities that need to be present whether a company pursues internal or external collection. If these qualities are pursued, then compliance issues will disappear. And if a company outsources to a third party to pursue its collection function, then the third party should have strong ethical standards that highlight the human factor. Here is the acronym:

C: Compassion, Connection, Communication, Courtesy, Customer-centric, Common sense

O: Options, Overcoming obstacles, Open-minded

L: Listen! Listen! Listen!

L: Learn! Legally-minded

E: Empathy, Education, Experience, Expertise, Excellence

C: Collaboration, Cooperation, Compliance

T: Teamwork, Targets, Timelines

O: Organization

R: Respect, Resolution, Results, Regulation

The above acronym highlights the human dimension of collection, not the technological and digital. It starts with the ‘C’ of compassion. Yes, collectors should show compassion to the debtor, especially in consumer transactions. Collectors need to connect in order to collect. Making that connection by building rapport is vital. Two-way open communication hallmarked by courtesy is paramount. Furthermore, a customer-centric approach is crucial in every collection call. I believe that collectors should always put on the customer service hat when they engage in collecting a debt. Simply put, it is common sense that should rule in collection.

Next, we see the ‘O,’ that opens the doors to options and alternatives. Collection is not a black and white approach. It should not be either / or. Collectors should work with the debtors to find the options and overcome the obstacles. Collectors should be open-minded throughout the collection process.

The first ‘L’ underlines the significance of listening. The key function for a collector should be to listen—listen to the debtor, listen to the debtor, listen to the debtor, listen to common sense. It is through listening that collectors move to the second ‘L.’

The second ‘L’ is a natural by-product of listening. When collectors listen, they learn, they go beneath the surface to see the unseen and the hidden. When they listen, they find the options that are practical and relevant. And yes, collectors should be legally-minded. They need to know the law, abide by the law and respect the law. Listening leads to the next letter ‘E.’

The ‘E’ reminds us of empathy. And empathy will make the collector’s job more exciting. Empathy humanizes the process; it allows the collector to walk in the debtor’s shoes—to feel, see, and experience the world from the debtor’s perspective and through the debtor’s eyes. Empathy leads to education that equips the collector with the experience that builds the expertise needed to show excellence in handling the collection process.

The next letter ‘C’ puts the spotlight on collaboration and cooperation. I read a quote that says: “If you want to be incrementally better: Be competitive. If you want to be exponentially better: Be cooperative.” So, for collectors to be better, to feel better, and for debtors to be better and feel better, they all need to cooperate and collaborate. Collaboration that reflects all of the previous ingredients will lead to compliance. Ethical and moral collectors that embody humanity and exercise their function with integrity and dignity cannot help but be compliant.

Now, the ‘T’ introduces teamwork that adds the flavor of joint effort and togetherness. When teams come together, they have a goal, a target to achieve. And with targets comes timelines. Thus, the collection process has an objective to collect in a timely manner to ensure the timely cashflow of the creditor while helping the debtor to be released on a timely manner from the burden of debt.

For collectors to really be successful they need the ‘O’ of organization. Organization allows the collector to handle the workflow with ease and proficiency. Organization allows the collector to become efficient and effective.

The final letter ‘R’ reiterates the importance of the human factor. Respect is a human need and collectors should show it at every step in the collection process. In addition to respect, collectors should never forget that collection is about resolution, resolving the issues, dissolving impasses and finding the options that lead to results. All should be done with dignity and decency under the vigilant eye of the law and regulations.

Just imagine collectors who exemplify the above! Collections, collectors will become words that elicit admiration and appreciation.

The human approach in collections will yield greater results than the hard-nosed and hardliner approach. Good, ethical, and law-abiding collectors are guides. They guide their debtors through the collection process leading them to win-win solutions. They steer them in the direction of resolution keeping the goals in sight, while showing understanding and empathy, maintaining initiative, and demonstrating high integrity and strong discipline. They allow themselves to be educated by the process and by the debtor in order to reach the destination without victims and injury.

From the above, we can see that collection is a multi-disciplinary process combining among many things a human approach that reflects knowledge of psychology, anthropology, sociology, negotiation, time management, organizational techniques and a host of functional skills needed in the collection field. To collect is not just about the moment, it is about the future. Though the digital age is here collection will always be a human function.
Eddy A. Sumar is the President & Founder of ERS Consulting Services. He is also the director of education and community outreach for CMA, and will be speaking at the upcoming CreditScape Fall Summit. He can be reached at 909-481-9869 or ealberto@aol.com. 

Save the Date: CMA Announces CreditScape Fall Summit, by Mike Mitchell

CMA President Mike Mitchell
CMA President Mike Mitchell

CMA is proud to announce that it is collaborating with commercial collection partner AG Adjustments (AGA) to bring credit professionals an entirely new experience in collection and A/R management training. The CreditScape Fall Summit, which takes place September 17-18, 2015 at the newly renovated Tropicana Hotel on the Las Vegas Strip, features two days of workshop training, expert practical and legal advice, and networking with other credit professionals.

Part of this unique learning approach will involve subject-matter experts and seasoned credit professionals sharing their experiences through interactive case studies, and each session will dedicate time for participants to share their own experiences with each other. Sustainable learning is about shared knowledge and experiences, and this is one way that CreditScape Conferences will keep participants ahead of the curve in an ever-changing credit landscape. This will also be much more interactive than the typical teacher-and-classroom experience our audience is used to.

From discussions I’ve had with members over the years, CMA members are always looking for better ways to manage and maximize recovery of their receivables. CMA’s partnership with AGA has played an important role in satisfying that need, but we saw an opportunity to take that relationship to a higher level. By leveraging AGA’s deep expertise in commercial collections and vast network of contacts and resources in the credit space, we can deliver leading-edge tools, techniques, and best-practices in accounts receivable management. I also want to incorporate the latest techniques in content delivery for adult learners to create a thought-provoking and practical meeting experience that produces valuable take-aways and sustained value for participants and their credit departments.

AGA’s president Mark Gerstel has told me that his company has envisioned producing a training event focused on commercial collections because there is such a need, and that working with CMA on this event gives AGA an opportunity to help credit managers do a lot more to help themselves and help their outsource partners to get better results.

Preliminary discussions with CMA members and industry partners have uncovered various capabilities and core competencies that affect collection effectiveness, including automation tools, the quality of customer investigations and evaluations, building relationships with customers and sales, and differentiated collection approaches for large and small debtors. These are some of the subjects that will drive content and discussion at CreditScape.

CMA’s education subcommittee is currently developing the programming for the event, which is designed to propose best practices and methods to collect receivables from your company’s customers. Details about the program will be announced this summer.

To learn more about the event, visit www.creditmanagementassociation.org/events or call 800-541-2622.

We look forward to seeing you there!