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Important Features When Selecting a Collection Agency

Even the most efficiently run business occasionally encounters some delinquent accounts — those bills that aren't paid on time. As a result, you may face the unpleasant task of trying to collect on past-due accounts.

Collection NoticeYour company probably has its own internal debt collection process, but when additional help is needed, you may need to turn to a professional credit collection agency. Because some states don't have many regulations governing collection agencies, the activities of these firms can go unmonitored. Therefore, you want to select a collection agency carefully.

When shopping around, look for these five features:

1. Good references. Ask for and check credit references.

2. Payment policy. The collection agency should deliver money to your company no later than 30 to 45 days after receiving it from the debtor.

3. Forms and reports. An agency should provide you with account placement forms and reports, which reflect the accounts you placed with the agency. These documents should be provided immediately and help you keep track of all accounts placed with the agency.

Typically, the forms should list, in addition to the creditor's information, full details, such as name, address, telephone numbers, e-mail, contact person, the amount due and any known reason why debtor is not paying. These documents ensure that an agency properly logs your accounts. Request samples before deciding on an agency.

4. Account status reports. An agency should provide you with account status reports that explain what stage of collection your accounts are in. Examples include partial payment arrangement, settled in full, paid in full, bankruptcy, or litigation recommended. The reports should be sent to you at least quarterly.

The agency should notify you whenever a debtor offers a possible settlement. It's also essential that the agency's authority to settle is clearly understood by both agency and creditor. Request that a sample status report be provided before you place any claims for collection.

5. Communication with the agency. Make sure that you can reach a human being when you want to call to discuss your accounts — not a recording or answering machine.

All Agencies Aren't Created Equal

In addition to the basic steps you take when engaging a professional firm, here are three legal aspects to check out:

  • Attorney affiliations. A credit collection agency should be affiliated with lawyers who have expertise in creditor rights and commercial litigation. Any legitimate collection agency should be associated with the Commercial Law League of America (CLLA) and the National Association of Retail Collection Attorneys (NARCA).
  • Attorney involvement. What criteria are necessary before referring a case to counsel? Insist that an agency seek your permission before making a referral. Also, ensure that you are consulted and given final approval when a settlement is made by the debtor. If the case is litigated, be aware that you are usually responsible for court costs and your collection agency's commission fee will likely be increased.
  • Professional communication. Since a collection agency is your duly authorized agent, the actions of its representatives reflect on your business. In addition, there are laws that protect consumers against harassing phone calls from debt collectors. Ensure that all contacts the agency makes with delinquent customers are handled professionally. Insist on proper treatment and get confirmation that the agency handles cases in a dignified, legal manner.
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