Many small businesses in the private sector do not have the required debt load that a collection agency would require to take on their receivables. Small companies could benefit from learning how to effectively manage their receivables from a collection agencies perspective. I would not rule out using a third party collection agency but you will still give your self an opportunity to collect on receivables that you would have written off as bad debt.
How does a collection agency work? What are the characteristics of a good bill collector? How and why does an account end up in a collection agency? There are many misconceptions about collection agencies. This article will clarify the inner workings of a collection agency. The five sections of a collection agency are: sales, office administration, collections, skip tracing and management. The sales department is responsible for obtaining the delinquent accounts from creditors. These creditors consist of small, medium and large businesses in the private and public sectors.
The sales people in a collection agency are generally paid a salary plus commission, and receive bonuses over a predetermined figure when it is reached. People working in sales take no part in collecting on the accounts they secure for the agencies. Sales staff partner with management to determine the contingency fee structure for each client. In larger collection agencies, there are usually national and sometimes regional sales managers who will get national accounts. These will be distributed to local offices for collection. The office administration is responsible for processing incoming accounts and distributing them to the collection staff. Much of their time is spent answering calls from both creditors and debtors.
This aspect of their job requires a great deal of tolerance and patience. In many instances the initial contact the agency has with a new debtor can determine the outcome of the collection effort. Due to the fact that most of the work done by collection agencies is over the phone, the clerical staff's ongoing telephone conversations in stressful situations is a vital contribution to the overall success of the collection agency. The collection department will vary in size depending upon the size of the agency. When the accounts are received by the collection department, they are distributed by the collections manager to the agency staff based upon type of account, and in some cases, difficulty of collections. Collection departments will often include an individual experienced in working legal files. This person is responsible for working judgments, doing asset searches, and giving appropriate instructions to the attorneys.
The earnings of most collectors consist of a small base salary and predetermined bonuses. A typical collector's monthly caseload involves 300-500 accounts with daily call volume of a minimum of 150 calls a day. A skip tracer's job is very important to the success of the agency. The skip tracer is responsible for locating debtors who have moved and left no forwarding addresses or phone number. A variety of methods is employed to locate debtors and where they work. Another responsibility may include helping the legal collector locate assets after a judgment has been obtained. Skip tracers are usually paid a hourly wage. The management team of an agency generally consists of individual department managers and a general manager. Due to the unique nature of collection agency work, it is extremely difficult for managers to keep their staff motivated.
The general manager carefully monitors the flow of work through the agency and supports each department in working to it's full potential. One of the most difficult jobs the general manager does is hire collectors, as that job has an unusually high attrition rate. The general manager, compliance officer and the training team is responsible for making sure that the agency adheres to all laws pertaining to collection practices. To fully understand the workings of a collection agency, one needs to understand the types of accounts the staff deals with on a daily basis. A typical account turned over to a collection agency has had no payments made for six months or more, and very often, no payments made for two or three years. Many times when the collector reviews the account, he or she can plainly see the number of broken payment arrangements that have been made by the debtor. In most instances it is also clearly evident that repeated attempts at communication by the creditor to the debtor have been ignored.
This information prepares the collections person for initial contact with the debtor. Based upon the review of the account history, most collection people will accept a reasonable payment arrangement. However they will be skeptical about the debtor's commitment to keep it. One unique aspect of the collection business is that the collector knows that the collector's initial contact with the debtor might be the only time they talk. It is imperative for the collector to inform the debtor of a process that is already in motion and that the only way to stop the process is appropriate payment on the account. Depending upon the size of the account, the process may include reports to credit agencies, and or litigation. By the time an account reaches a collection agency, the creditor has already agreed to pay the agency anywhere from 15%-50% of the collected amount. This fact influences settlement negotiation. If a debtor wants to avoid litigation, the collection agency may work with the debtor to settle the account in the following ways:
1) One time lump sum payment to settle the debt. This requires no follow up or maintenance by the collection agency.
2) A large payment followed by a few smaller payments.
3) An agreed upon settlement amount split over six monthly installments.
One should never ignore a phone call from a collection agency. Communication with a collector is as important as communication with a creditor. While it is true that a collection agency will not file a lawsuit against a debtor for a bill of $50.00, the unpaid bill will show up on a debtor's credit report and cost the debtor thousands of dollars down the road in increased fees for loans and mortgages. In the event one needs to deal with a collection agency, it should be done so in an expeditious professional manner. As in any credit situation, do not ignore phone calls or communication from a collection agency.
Receivables Training Academy
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