Collection Agencies

What should I consider when looking for an OCA?

Capabilities: Capability is the agency’s capacity to get the job done. The agency should have appropriate collection software, phone software and staffing to adequately collect your accounts.  Consider the type of software they use and whether or not they can interface with your programs in order to transfer data electronically. 

Some offer pre-collect services where the agency begins working an account before the debtor falls past due. All agencies should offer skiptracing services. Many agencies also offer ancillary services such as accounting or billing. Some even provide consulting services, telemarketing, and campaign calling. 

Market Knowledge: It’s extremely important that the selected agency has experience with your industry. They should be conversant in the terminology and requirements appropriate to your debt type.  For instance, court fines and taxes are tied to specific statutes that must be adhered to. 

Recovery Rate: Governments tend to get hung up on commission rates, worrying that the agency is taking a big bite out of your revenue. Commission rates are not nearly as important as recovery rates. Recovery rates work like this:

If you place a total of $10,000 with a collection agency that only charges 20% commission but has a recovery rate of only 35%, you would only get $2,800. However, if you placed another $10,000 worth of debt with a collection agent that has a 70% recovery rate and charges a 35% commission, you would collect a total of $4,550.

Procedures/Policies: The OCA should be able to define their policies and procedures for you.  Some will provide copies of sample letters or call scripts for your review. You should feel comfortable that they comply with all federal and state regulations.  In fact, you should feel comfortable, period. The agency should fit with your government’s needs and philosophies. A visit to their office is encouraged so you can see, first hand, how their operation runs. Your meeting with their representatives should leave you feeling confident about their collection procedures, its employees, and their standards for conduct and compliance. 

Training: Memberships in trade organizations like ACA International or Commercial Collection Agency Association are a measure of how valuable training and education is to the organization. The agency should provide regular training and education for all their employees to ensure they are the most professional and competent employees.

Professionalism: Again, any agency worth consideration should be a member in good standing with State or National organizations.  They should demonstrate their commitment to ethical standards and compliance with Federal and State laws. They should be licensed and bonded, if it’s required in your state. A summary of each state’s collection laws, statutes and licensing requirements can be found by visiting the reference page at www.commercialbar.com. An unscheduled site visit will provide insight into the professionalism of the company. 

Insurance: Errors and Omissions Liability (E&O) coverage can be an indicator of a reputable agency and will often extend coverage to the credit grantor in addition to the agency. Insurance that covers the government is important because your organization can be held liable for a violation committed by your chosen collection agency. 

Ask to see the agencies up-to-date E&O policy. When possible, look at the claims against the agency, paying particular attention to any claims brought by consumers for harassment, libel, invasion of privacy, or other wrongful acts. E&O insurance should specifically cover FDCPA or FCRA violations. 

References: Any reputable agency will be happy to provide references. In addition to talking to current clients, check with the local Chamber of Commerce and Better Business Bureau. Don’t overlook the value of talking to prior clients to find out why they are no longer with the agency. You may also obtain valuable insights by talking to the agency’s competitors.

Pricing: Collection agency pricing varies. Most work on contingency, meaning that they don’t get paid if the account goes uncollected. Beware of agencies that require upfront fees for collection services. Percentages vary depending on the size of the placement and age of the debts, as well as the services performed with legal services being more expensive. There are also fixed rate pricing structures for a series of letters or calls.

As stated above, commission rates may not be as important as the recovery rate so be sure to take both into account when discussing pricing.  

Geographic Coverage and Licensing: Licensing requirements vary from state to state. A summary of each state’s licensing requirements can be found by visiting the reference page at www.commercialbar.com.  Most states require agencies to be licensed prior to pursuing debtors in that state and these licenses do not extend beyond the border of that state if the debtor moves. With your approval, the agency should be able to forward the account to an agency in another state but this may decrease the amount returned to you upon collection. Ask potential agencies what states they are able to collect in, and how they handle accounts in other locations.

Hiring a local collection agency can be advantageous as the collectors know the area. This may result in more efficient skiptracing efforts and increase cooperation from consumers. 

Reputation: “Collection Agency” conjures up many different images and generally speaking, they’re not good. The agency’s reputation should be a primary concern as they will be dealing with not only your taxpayers but your internal staff. Online searches of blogs and consumer protection sites can help identify agencies with questionable tactics and ethics. Look for agencies embroiled in lawsuits, those who have been fined or sanctioned by the FTC, and those who have failed to maintain their membership with trade organizations such as ACA International. ACA International has a robust code of ethics that may help you generate ideas or questions for prospective agents. 

Methods of collection: Collection agencies have been accused of all kinds of inappropriate behavior and unethical tactics. Site visits are encouraged but you should also request copies of letters and phone scripts that would be used on your accounts. Ask the agency to describe the life-cycle of a typical collection account. Ask how the agency handles legitimate hardships, disputes, consumer requests for information, cease and desist requests by consumers and skiptracing.  Corporate culture is important so find out how the agency trains their collectors and what their collection philosophy is. 

Reporting: Feedback is crucial to determining the success of the agency’s efforts. All agencies should have standard reports that they provide to your government on a predetermined basis. Many offer electronic reporting. Be sure you understand the information the reports contain and how the values are calculated. If there is specific information that you’d like the agency to report, communicate this information to them as many agencies can produce client-specific reports. 

Skip tracing: Examining how the agencies handles skip tracing is important. The agency should have the appropriate training, resources, and technology to skip trace efficiently and effectively.  Find out what tools they use and ask how approach a skip account.  Take care to note if they are dealing legally and professionally with potential sources such as neighbors and family members of the consumer.

Examples of RFPs and Contracts

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Agency Contracts:

RFPs for services