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Make 'Em Pay Part 2 - Hiring a Debt Collection Agency

past due billIn “Make ‘Em Pay-How to Get Debtors to Settle Past Due Accounts”, we discussed methods businesses can use to recover their debts, from setting up accounts, to making calls, and sending letters. In this installment, we will cover how to hire a collection agency when all other attempts of collecting haven’t been successful.

Credible collection agencies provide valuable services that can help businesses keep capital steady and succeed in collecting receivables it’s owed. There are different types of agencies to fit the needs of a variety of businesses, from small individual firms to large corporations. The tips in this article will aid in finding an agency that meets your needs and, at the same time, represent you in a fair, responsible, and professional manner.

As always, it is vital to research any company you are looking to do business with. Obtaining a Reliability Report from Business Consumer Alliance is a great way to see the type of complaint experience a business has received. The Federal Fair Debt Collection Practices Act (“FDCPA) has clear rules about collecting debts and what is and isn’t allowed. If the company has a history of using aggressive, unscrupulous tactics to intimidate debtors, you want to avoid those businesses because your company can be sued if the debtor’s rights are violated. Also, check online review sites and social media to see what people are saying about the company.

Reviewing the reputation of a business should help narrow down the selection. Verify that the business has the appropriate license, bond, and insurance. These requirements vary by state, so make sure you verify the standards with your local or state authority or Attorney General. Look for an agency that has experience with your specific industry and the type, age, and amount of debt you’re trying to recover. Ask about their success rate and obtain references of clients who have used their services. Consider a business that is easy to communicate with and that provides a reliable point of contact.

The debt collector should be willing to provide reviewed or audited financials and detailed information on the collection process, including how the debtor will be contacted, how often, and regular updates on their collection activity. Some agents will set up independent trust accounts for payments made from your customers so that they are separate from other funds. Inquire about the company’s use of “skip tracing”, which provides the agency with access to several databases to help locate a debtor if they are no longer at the location on file and have left no forwarding address. Get a clear understanding of what the agency requires of you in the process.

Compare services and fees of several companies before making a final decision. Some agencies work on contingency, meaning they collect their fees on the back-end once the debt has been collected. Typically, these types of arrangements allow for the agency to charge between 25-45% of the total collected. Another option is to pay a flat fee, which is usually a small fee paid up-front. If you are considering paying a flat fee, obtain any policies regarding refunds and guarantees in writing prior to making any payment. Your contract with the business should have a clear description of the services to be performed and the cost of services, along with any other terms and conditions.

Ask if the agency has “Errors and Omissions Insurance”, which can serve as protection to you and your business if a debtor files charges against the agency for negligence, harassment, or aggressive collection tactics. Keep in mind that collection agencies normally will not provide a timeframe for recovering debts, as this is dependent on when or if the debtor pays. Be leery of any claims that seem too good to be true. Be prepared to provide accurate, detailed information on the accounts that need to be pursued for collection, including your ledgers, records, and documentation of previous collection efforts. Cooperate with the agency and communicate frequently with them so that all tasks are in accord.

Taking the time to investigate a business may help you avoid falling into the same predicament that befell a number of businesses that used Heckler & Smith Associates, Inc. (“HSA”), dba Financial Adjustment Solutions out of Woodland Hills, CA. The F-rated collection agency promised owners they would recover debts using tactics such as freezing assets and would pursue legal remedies if paid up-front fees for collection services that ranged from a few hundred dollars to thousands of dollars. One business paid the company a whopping $16,000 and received nothing in return. Although the agency successfully collected money from some debtors, they failed to forward any funds to the business owners that hired them. The owners received the runaround and excuses as to why the monies weren’t forwarded, while some never heard from the company at all. Some owners were guaranteed refunds if the agency failed to collect, but they fared no better since their refund requests either fell on deaf ears or were delayed. In some cases, not even filing complaints helped these victims recover their money.

HSA’s practices were heinous enough to garner them an investigative piece in November 2013, by CBS news in St. Louis. In the segment, a former employee claimed that 7 out of 10 debts collected by the company never made it to the client to whom the debt was owed. Instead, the employees and company representatives used the money to purchase expensive items for themselves, all on the client’s dime. Another notable case is the FTC vs. Rumson, Bolling, & Associates, also an F-rated company. This company was banned from providing debt collection services due to serious allegations, similar to HSA’s practices.

Researching a business and doing your due diligence before making a decision to hire any business may save you time, frustration, and money in the end.