In any industry where money is exchanged, debt is an inevitability. For small businesses, even small transactions can add up quickly and late payments, delinquent accounts, and chargebacks can start to bury an otherwise thriving business. This is where a debt collection agency can help your business succeed.
Recovering payments on otherwise lost accounts probably sounds great, but let’s do some research before you get started! Here are a few things to consider when you begin looking for a collection agency for your small business.
1. Where can they collect?
Collections agencies can provide financial services to businesses ranging from those in their local area to companies across the country, but it’s important to validate that they can operate in your state! Local collectors may not have the licensing authority to collect across state lines.
Larger collection agencies may also work across the country and even specialize in collecting certain types of debt for a given industry, such as point of sale transactions, credit card, rent to own products, loans, etc.
2. What industries do they serve?
The needs of B2C (business-to-consumer) businesses are dramatically different than those of primarily B2B (business-to-business) business lenders or tech start-ups. Collectors that specialize in specific verticals can ramp up and start collecting effectively, faster because of their familiarity with consumers in that space. Don’t be afraid to ask a collector for their experience working with other businesses like yours!
3. Are they legally compliant?
Beyond the local and state level access, federal regulations play a large part in a collector’s operational ability. Keep your business safe and verify that the company you’re interested in working with has a comprehensive compliance management system.
A proper system will be designed to be in compliance with the Fair Debt Collection Practices Act as well as other state and federal regulations. Also, ask what preparations the company has made for compliance with the upcoming Consumer Financial Protection Bureau’s newly proposed rules.
When you begin your research into new agencies, consider visiting their Better Business Bureau page or looking through their Google Reviews. Consumers that have had particularly negative or even legally questionable experiences with the business may help you to recognize red flags before they become an issue for you and your team.
4. What is their pricing structure?
The price on any purchase for your business can make or break the decision to invest in a new product or service, and finding a debt collection agency at the right cost is no different. Most debt collection agencies will be priced in one of three ways: flat fee, contingency, or a hybrid model.
- A flat fee is a one-time service payment that coincides with signing a contract and will vary depending on the volume of accounts that are being collected on.
- A contingency payment plan is a performance-based payment model where the collector only profits from the accounts they are able to collect on. Signing a contingency contract will typically outline the percentage that they will collect per account and may change from portfolio to portfolio.
- A hybrid model is often a custom solution that begins with a flat fee contract and expands out to accomodate more accounts if the collector is exceeding expectations.
5. What communication channels are they using?
The debt collection industry is undergoing a massive change, and many collections agencies are struggling to adapt. Call-based collections has been the norm for decades, and a large percentage of debt collection agencies still rely on sending letters (91%) or making phone calls (89%) as their preferred contact channels.
Unfortunately, these channels are no longer the ideal channels for consumers. Collection agencies that embrace digital channels (email, SMS messaging, etc.) are more likely to reach consumers when and where they like to communicate, and help to humanize the collections experience.
If you’re interested in learning more about the future of communication strategies in collections, you can read here!
Working with a debt collection agency may seem like a risk, but finding the right solution for your business can mean recovering revenue that would have otherwise been entirely lost. Just make sure that your new partner is the right one for your business. What other questions do you have about what it means to work with a collection agency? Let us know!