By Greg Cohen
President, International Association of Commercial Collectors
Your credit department has called, emailed and sent letters. Your customer has made and broken payment promises, or perhaps has stopped taking your calls altogether. Further internal effort will likely bring only frustration and a waste of time and money.
You know circumstances like these require a collection agency. But you might not know all of the steps you should take to increase your agency’s odds of successfully collecting the debt. It comes down to forging a partnership
based on effective communication, information sharing and trust.
Choose the Right Agency
The first step in building a great partnership is choosing the right partner or partners. If your volume of placement warrants it, best practices usually dictate creditors having at least two agencies, which both maximizes your net back, encourages a friendly competition among agencies that benefits your company, and protects you if one collector fails to meet your performance expectations, goes out of business, etc. Of course you want to choose an agency with a successful track record. But in collections, the end never justifies the means. The wrong agency can sever otherwise salvageable customer relationships, damage your professional reputation, or even land you in court.
Be sure the agency has high ethical, professional and legal standards
Before considering an agency, request proof that they:
• Have a bond protecting against defalcations – that’s the
official word for when an agency or attorney collects
money owed to you, but doesn’t remit.
• Have a trust account, a separate bank account for all
money related to a collection claim that prevents the comingling
of your money with their money.
• Are regularly audited by a third party.
Here’s a shortcut: Ask if the agency is certified, and by
whom. Knowing the certifying body allows you to Google
that organization to find the specifics requirements.
Also ask about professional trade organization membership,
as these impose additional requirements. For example,
some trade organizations have strict measures in place to
ensure quality and integrity. They may include binding their
members to a Code of Ethics, and requiring them to pass a
rigorous reference check, having a bond requirement and
maintaining a separate trust account for all client money.
Association membership also brings opportunities for
continuing professional education and a national and global
network of other agencies and collection attorneys.
An agency is only as good as its agents: What training do
“When we hire a new collector at ABC, we tell them we don’t
want anything that collector does or fails to do to negatively
impact our client’s relationship with their customer,” said ABCAmega
Senior Vice President Robert Tharnish. “Once the
delinquent amount is resolved, it is the creditor’s decision if
they want to do business with their customer going forward.”
When asking about agent training, listen for lessons on:
• Compliance. The laws that govern collection are
constantly changing. They also vary from state to
state and country to country. You need an agency that
thoroughly trains agents in all of this complexity and
provides them with regular updates on the changing
compliance landscape. This is not optional! A violation
may land your company in court alongside the agency
• Telephone and letter writing skills. Poor grammar, for
example, makes a terrible impression. The agent may
also be taken less seriously.
• Collections legal process. Your agency should be able
to answer your questions about next steps. This is
especially valuable if you have international customers.
• Debtor psychology. The successful collector knows how
to persuade debtors that paying your debt benefits them.
Is this agency a good fit for your company?
You’re wise to choose an agency familiar with your industry.
Agents who understand the industry’s business cycle,
challenges and jargon will build a better rapport with your
customers and be better able to negotiate reasonable
payment plans or conversely, recognize a snow job.
Know what your needs and wants are before building the
contract, but also seek an agency nimble enough to adapt if
your needs vary by customer or change over time.
Do you need to outsource some or all of your first party
collections? If so, consider looking for an agency that does
both for the most seamless transition. Generally, agencies
will use your company name when processing young debts,
then use their name when collecting any accounts that age
The right agency will be willing to build a collections program
to your specifications, which are usually memorialized in
a service level agreement. This might include how many
contacts with the debtor you want prior to attorney referral,
for example, whether this should this be constant or vary
by account, or if you never want an account referred to
an attorney without your direct permission. Additionally,
you will want to consider the controls you have in place for
each decision point and where in the relationship they are
Just as important is the tenor of those contacts. You may
know from experience that your customers respond best
to blunt language and a professional but terse reminder of
consequences of not paying what you’re owed. But you might
also prefer a softer approach, at least in some circumstances.
Lee VandenHeuvel, President of Ross, Stuart & Dawson,
shares a story of how kindness recently motivated a debtor
involved in a claim placed with his agency by a Fortune 500
client to pay. “We said something like, ‘Hey, we are working
on this issue for our client, we just received it. I see another
agency has already contacted you. Could you just tell me
what has happened over the last 12 months, and walk me
through what, in your opinion, led to this, and what we can do
to get rid of this thing?’” VandenHeuvel recalled.
“What they said to us was, ‘You’re a lot nicer than the last
agency that called us. You’re just telling me to help you solve
a problem. Because you were so nice to me, I’m putting this
on top of the pile for our next check run.’”
The bill was paid within two weeks.
Set Communication Expectations – and Meet Them, Too
Once you’ve chosen an agency, it’s time to build your
partnership. As with any partnership, open communication is
an essential part of your onboarding strategy. Early on, you
will together put into writing some of the wants and needs
discussed above. This is also when you let the agency know
how often you expect reports on account progress.
If you are placing thousands of relatively small claims, you
may choose to only receive monthly or even quarterly results
reports on the amounts placed, amounts collected and your
cost, and otherwise hear from your agency only if they have
a question or need you to authorize a payment plan, claim
settlement or legal action. Conversely, if you place a small
number of large claims, you may want regular progress
reports along the way. Technological advances have allowed
most agencies to be so open that you can electronically view
the current status of any of your claims, even reading the
notes agents made after each debtor contact.
Expect your agency’s liaison to regularly touch base with you
to see if any of your needs have changed. Never hesitate to
initiate contact, however.
Partnerships are two-way relationships, and it is almost as
important for you to respond quickly to your agency as it is for
your agency to respond quickly to you.
“Responsiveness is the number one issue we face with
clients day-to-day,” Tharnish said. He offers a hypothetical
example based on actual ABC-Amega experiences: The
agency gets a debtor to agree to pay $1,000 per month to
clear a $5,000 debt in five months and recommends the
client accept. “It takes three months for us to get a response
for the client, and we could have had it more than half done
by then,” Tharnish said. “There’s nothing we can do except
keep prompting the client to respond.” It’s not just about
clearing the debt quickly, Tharnish said, it can risk clearing
the debt at all. “The longer we wait to get back to the debtor,
the more likely they are going to change what they can do,
and the stronger the signal that the creditor is not really
serious about collecting the debt.”
Documents/Information to Collect and Share
Think about this: 37% of respondents to a late 2015 survey
of International Association of Commercial Collector
members said that missing or incomplete documents are
the greatest obstacle to successful collection. “Documents
detailing what the debtor ordered, and what was delivered
and when, are commonly missing from the information
a commercial collector receives,” said Joe Batie, Chief
Commercial Officer at Caine & Weiner. Batie estimated that
55 to 60% of clients send incomplete records.
This means creditors can overcome a significant obstacle to
collecting overdue debts by gathering the right information
before the sale, then documenting orders of goods or
services and confirmation of receipt, recording any
additional correspondence with the customer, and sharing
with their agency.
A good collection agency will help you refine your
documentation process, so ask for guidance if you want
some, said Tony Terry, president of Continental Recovery
and Filing Solutions.
The most important pre-sale document is a properly
constructed and fully complete credit application. Terry
said every credit application should include the names of
the company’s principals, along with home addresses and
telephone numbers, and, as often as possible, a personal
guarantee. The first provides additional means of contact
should, say, the company go out of business. The second
gives both internal and third-party collectors significantly
more leverage. Don’t grant credit unless every field is filled!
Every company should also require banking information on
its credit application, as most states allow judgements to
be levied on the customer’s bank account. He offers this
additional tip: “When you get your first invoice paid from a
customer, make a copy of the check they paid you with and
throw it into their file. Sometimes the bank account they put
on their application for credit is not the same as the one
they are paying you with.”
Other documents collection agencies find useful include
the contract or order, proof of delivery or proof of service
rendered, and any correspondence with the customer prior
to placing the account with the agency. These documents
provide information that can help persuade a debtor to pay
©2016 Credit Research Foundation
or, if necessary, lay the groundwork for a lawsuit. Missing
documents allow a debtor resisting payment to stall, or even
make up their own version of events.
Ask your agency which documents they consider helpful. “We
ask our clients to give us all of the documentation, including
the purchase history, notes on conversations with the debtor
and any email strings,” VandenHeuvel said.
What’s often missing: A signed agreement for goods
or services. “Believe it or not, a lot is done verbally,”
VandenHeuvel said. If you’re doing any business this way,
please stop! “I don’t care if you have a dated email, or
something written on a bar napkin – I need something where
your customer has acknowledged the purchase and agreed
to move forward,” he said.
Collection agencies are good at spotting trends among
the documentation you provide on the accounts you refer,
including information that is frequently missing or insufficient.
Know When to Say When
It can be tempting to keep on trying to collect an overdue
account in house. The longer the history with the customer,
the bigger the dollar amount overdue, the harder it can be to
send the account to collections.
But the older a debt gets, the less likely it is to ever be
collected (see chart below). Old accounts are also frustrating
and bogging down the credit department, usurping credit
professional energy that could be better used reminding
current customers to stay current or collecting debts only
slightly past due.
“The longer you wait, the more time the late-paying customer
has to abandon the debt or go out of business,” Batie said.
While your agency probably wishes you would turn accounts
over sooner, ultimately, only you can set the maximum
tolerance before accounts are sent to collections. But
whatever that number, please watch for these red flags that
indicate the need to act immediately:
• Broken promises of payment.
• A change in debtor company ownership – remember
the new owner may have only purchased assets, not
liabilities, and the old owner is trying to leave the past
• Failure to respond to demands for payment. Unreturned
or ignored phone calls.
• Changes in payment patterns or in means of payment
– a customer who uses checks suddenly switches to a
credit card, for example.
• Reports of strange happenings from your sales staff –
this one deserves its own section. Read on.
The Role of Sales in Collections
Your sales force may see signs of significant trouble long
before a debt ages into collections. It’s hard not to notice a
“going out of business” sign in the window, or a significant
drop in staffing or inventory.
There’s no doubt the credit department would benefit from
this information, but it is also undeniable that many sales
people would hesitate to report those signals to the credit
department – they fear losing a customer.
©2016 Credit Research Foundation
One way to encourage sales to be more open with this type
of information is the commission charge back. “If the deal
goes bad, if the customer doesn’t pay, the salesperson
doesn’t get or must pay back their commission,” Tharnish
said. “This creates an incentive to sales to provide any
information that might help collect the claim.”
It’s easy to recognize success when your agency collects
in full. But what about those times when less than 100% is
offered by the debtor? Trust your partner. Your agency will
recommend action based on prior experience and research of
the current situation.
“When a settlement is being offered due to financial
difficulties, and we are able to confirm that, and the
settlement is reasonable, then we are going to encourage our
client to accept it,” Terry said. “If a settlement is being offered
due to a dispute over the debt, we look at each case on its
own merits. If there are threats of counter claims from the
debtor and any credence to the debtor’s claim, or inability for
the creditor to refute their dispute, we will also recommend
acceptance of a reasonable settlement.”
A few years ago, Tharnish was handling a claim from a client
in China who said a customer in Columbia owed $50,000.
The debtor said only $40,000 was owed, and produced
documents that said so.
The creditor insisted, document be damned, they were owed
$50,000, then admitted giving their customer the $40,000
documentation so the customer would not owe as much to
“The creditor and the debtor were in collusion to defraud
customs in Columbia!” Tharnish said. “I told the creditor they
had better take that $40,000.”
It’s not usually prison that’s at stake with unrealistic
expectations, but the bottom line.
Let’s say a debtor owes $50,000, but offers to settle for
$45,000. Court costs are $5,000, so even if the creditor
wins the lawsuit, the net is still $45,000, and victory is not
guaranteed. So of course the creditor should accept the
If a creditor is angry with the debtor, and unable to see past
that anger, the answer may be no.
“If you allow emotions to drive your decision-making model,
you and your company will usually end up on the short side
of the equation,” said Thomas E. Brenan, President and CEO
of Altus Global Trade Solutions. “It is always best to compare
the costs to the projected return.”
Just as the ever-changing business landscape requires
you to be open to new ideas, advances in technology, new
opportunities and best practices, you need a collection
agency or agencies that do the same. Because any agency
you work with is in effect an extension of your credit
department, you also want to choose only agencies aligned
with your company’s core values and expectations. Open
communication, careful documentation, and the sharing of
information are what allow you to ensure you have chosen
the right agency and build the strongest and most effective