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14 Important Questions You Should Ask
Before Hiring a Collection Agency
By Alexander L. Ullenberg, Esq.
1. How long has the collection agency been in business and at their present location? Obviously, the longer the agency has been in business and at its present location, the more likely they have provided quality services in the past and are concerned about their reputation (and ultimately yours). The agency should also have an easy-to-find location that has easy access to public transportation (as debtors will have to get there). Because collection agencies cannot initiate legal proceedings they depend upon “nagging” debtors to obtain payment. When this works, you want your debtors to be able to get to their office easily and quickly to make the payments.
2. How many collectors are on staff? The collectors are your spokesperson at the agency. They will be the ones contacting your debtors and demanding payment. You want collectors that are appropriately trained, courteous and professional -- even in the face of a rude debtor. You also want to know how many collectors will be assigned to your accounts. The more collectors assigned to your accounts the harder it is for them to truly know your debtor and discover the individual motivations that will encourage them to pay. How does your agency handle this?
3. How long have these collectors lived in the area? The “local connection” is important in debt collection – they know the area where your customers are living and working and if necessary could easily track down them down in person.
4. Does the collection agency have evening or weekend hours? Collection agencies rely on persistent personal contact with debtors to obtain payment. They cannot file lawsuits against debtors, garnish their wages, or use other legal collection processes, therefore their sole and primary weapon is persistent telephone contact. If they can’t reach your debtors at night or on the weekends (when they’re most likely not working), they’ve lost their primary weapon.
5. Do they have a toll-free phone number? Again, the collection agencies primary means of obtaining payment is telephone contact with your debtor. Your debtor has to be able to reach them – even if they can’t afford to make a long-distance telephone call.
6. What are their office hours? Many times the state regulatory agency overseeing collection agencies will set forth the minimum hours the agency is open. However, you want an agency that is open during times that your debtors can reach them – like early evenings or weekends.
7. Are they computerized? Collection agencies depend upon heavy collection volume to make their profits. Thousands of accounts flow through successful agencies each month. Computers help make sure your account isn’t lost in the flow.
8. How many accounts are in their portfolio? Collection agencies thrive on a large volume of accounts. You want to make sure that your account will not get lost in the shuffle. The more accounts in the agency’s portfolio the more collectors needed, etc.
9. When was the last time they were examined by their regulatory agency and can you see the last report? Most states closely monitor and regulate collection agencies and conduct at least bi-annual reviews of the agencies, their accounts, and internal procedures. These inspection reports often times highlight problems at the agency and requirement specific improvements. Check it out, if you can.
10. Does the collection agency have its own attorney to advise them on compliance issues and to assist them with drafting collection letters and designing internal collection procedures? Many times collection agencies do not have their own “corporate counsel” or attorney who helps them create collection systems that are in compliance with all applicable laws and regulations. Collection agencies that are not using up-to-date forms, collection letters, or systems can be in violation of the law. These violations ultimately could subject the agency to litigation by aggrieved debtors and you may become an unwilling participant in the fracas if it’s your debtor.
11. Has the collection agency handled your type of accounts before? Can you speak to any of their other customers who have similar accounts? Every industry has it own unique problems when collecting overdue accounts. The medical industry must deal with insurance payments and certain federal laws that mandate services to indigent people. Automobile repair shops must deal with regulations concerning property disclosures of services and fees. And all consumer industries have to comply with extensive regulations on charging interest. If your collection agency isn’t familiar with these special requirements it could inadvertently subject you to liability if it violates one of these special rules.
12. What does the collection agency do when it ultimately determines that you need to file a lawsuit to collect the delinquent account? Many times collection agencies seem to imply to their customers that they can handle legal collections if that becomes necessary. However, in Wisconsin, collection agencies cannot sue on your behalf. Period. To get around this, collection agencies sometimes have a relationship with an attorney who will accept referrals and commence legal proceedings for their customers. The attorney negotiates his fee through the agency; and oftentimes has very little contact with you. Collections agencies may “charge” their customers a 45% fee on legal collections even when the attorney is charging only 20%.
13. Does the collection agency apply debtor payments proportionately to all accounts it holds against that debtor or to the first account that was placed for collection? As collection agencies depend on high volume to make their profits, many times one debtor will have several accounts listed with the agency at the same time and make only one payment to the agency. How does the agency apply that say $25 weekly payment? Does it apply it all to the first account listed with the agency against that debtor or proportionately on all accounts against that debtor?
14. How long does the collection agency keep accounts that it hasn’t received payments on before notifying you or recommending legal action? Collection agencies depend upon lots of accounts being placed for collection in their portfolios. And in the race to “earn” their fees, they can sometimes keep accounts in their portfolio long after they should’ve been referred out for legal collections. The faster you move to collect the amounts due to you, the more likely you will be paid and not left waiting in line. The longer a collection agency “sits” on your account without obtaining some sort of payment or recommending legal collections, the more likely you will never get paid on the account. You want an agency that addresses each account promptly and promptly recommends legal action when necessary.