Connor BrookeIf your a small business who does business on credit, there will probably be a time you need to call in a collection agency to deal with a severely delinquent account. However, collection agencies are almost always considered a last resort. But why? We are naturally inclined to think of collection agencies as “sketchy”. Here’s a few reasons that collection agencies got such a bad rap:
Why Do People Think Collection Agencies Are Sketchy?
1. Ruined Customer Relationships – When you send your customers to a third party agency, there is a risk of losing that customer. If you don’t do the proper research it takes to find a quality collection agency, you could use one that doesn’t treat your customers the way you would hope. Business owners who have made the mistake of not doing proper due diligence have lost customers because of collection agencies who didn’t put customer service at the top of their priority list.
2. Non- Transparent Pricing – Some collection agencies do not have transparent pricing and it’s near impossible to figure out their free structure. It’s scary to commit to a service whose price you don’t quite know.
3. Lawbreaking – Some collection agencies don’t always follow the careful laws set in place to protect debtors. This leaves negative impressions on both the business who sent the account to collections and the account holder. Make sure to learn about your rights and how to stop a bad debt collector.
Collections is an interesting industry and truthfully, rather lucrative. According the CCAA (Commercial Collection Agency Association), in 2008 there were close to $15 billion commercial accounts placed for collections. No telling what that number is now. To put things in perspective: trade credit is a $2.1 trillion industry; 20% of THAT is delinquent.
As mentioned, an issue with *some* agencies is they don’t follow the laws. But then again the laws aren’t particularly enforced. For example, of over the 6,000 collection agencies in the US, only about 5% are properly licensed.
And back to those hidden fees. They are hard to find for a reason, because they tend be 30% – 50% commission fees. Non-transparent AND astronomical.
So, does that makes sense? People jump to this sketchy stereotype because *some* collection agencies treated their customers poorly, hid their ENORMOUS pricing and ignored important collections laws.
However, not all collection agencies are bad. It’s simply about asking the right questions to make sure you find an agency that values the relationship you have with your customers, is upfront and honest about their fee and takes the rules seriously. Take the time to do proper due diligence on a collection agency so you stay away from those that give the industry a bad rap. Also, do yourself a favor and look at streamlining your receivables management, so you can do your best to avoid those collection agencies.
This article was written for Business 2 Community by Connor Brooke.
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Wow somebody didn’t do there homework! Non Transparent fees??? Fees from agencies are very simple. typically they are based on age of the recievable and collectability of the recievable. The earlier you turn over an account the more collectible it is the lower the contingency fee. What you fail to point out is Agencies only get paid if they recover the money. You may turn 10 accounts over and they are able to collect on one of them thats the only fee you pay the other 9 accounts are worked money expended by the agency yet they recieve 0 for their efforts. so you only pay for success. Tell me where ele do you only pay for success for anything you use or buy? if you asked the agency about their pricing I’m sure they woud explain it plus my suggestion is shop around agency will price differently if your business is profitable but remember they only get paid for what they collect yet they work all the business you place!!
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Hi John!
I keep trying to reply to your comment but I’m not sure why they aren’t posting (maybe because I was including links?). Anyways, I love what you said about collection agencies being one of the only services you pay for success. That’s what is great about them, you only pay if they collect. This article is not about bashing collection agencies, it’s about trying to figure out why they have such a bad rap. I firmly believe that businesses should have a collections partner but have found so many businesses are hesitant to use them. These are the 3 reasons “why” that I came across. There is quite a bit of literature, and even forums out there that talk about people getting charged with hidden fees (I tried to include the links, but it’s not posting those comments. Connect with me on Twitter and I’m happy to send them to you.) However, you are right that there are agencies who are straightforward with pricing and that’s who customers should be working with. They should never bother with an agency that doesn’t lay out things specifically and simply. Thanks for stopping by (and sorry if you get 5 comments in reply to this post!).
Best,
Meredith
Great article Meredith. Thank you for pointing out such pertinent facts, and taking care not too condemn all collection agencies. After 15+ years of experience I have some good insight into this topic. Unfortunately (like any industry really) many of these stereotypes are true in many of the agencies. Let’s not forget that there are sketchy folks in every business though, including teachers, pilots, police, doctors, priests/pastors, nurses, bloggers :) …you get the point.
As a person of integrity, I had so many bad experiences at companies of all sizes, I finally decided to start my own specialized collection firm to offer the best of the best to top level clients. I still must fight through the stereotypes quite often. That’s alright with me though, because when I educate people, then show them the benefits of partnering with us, we are all of the sudden their best friend. Bad press for “most collection agencies” is great PR for my company.
The fact is we are professionals performing a crucial business function. Maximizing profits and minimizing losses is an art form that only TRUE, experienced professionals can orchestrate.
I wish more agencies would focus more on transparency, and quality service. It’s the BIG company, fast talking, sweat shop set ups that earn a bad name for good reason. Those are the ones getting the bulk of the business because they have a large and pushy sales force. A quick google search will tell you who you are dealing with, YOU must invest a little time to make sure of what you are doing, like ANY purchase.
Let’s also not forget that many of the clients placing accounts have unsavory practices, and also that many of those who owe money aren’t operating in good faith by any means. So there is responsibility to be taken in several different areas.
There is a certain set of facts in every non-payment case, it’s all about getting to those and ensuring the best possible outcome. Leaving ego, unsavory tactics, and unfair rates out of the picture is how we do that.
The truth is that businesses need a collection partner, and there are trustworthy ones out there who have their ducks in a row. Like I said, next thing you know we’ll be YOUR be$t friend.
If I may share a link to a blog I posted about this very same topic
http://www.c-rsolutions.com/1/post/2012/05/beware-of-bad-collection-agencies.html
Best of luck everyone!
Hi Jason!
Thanks for stopping by. You’re right, every industry has their stereotypes (and people who do super sketchy things). It’s awesome that you’re out to fight that stereotype. Education is the key, and it’s great you are taking the time to work with clients to show them the benefits. I think that’s why it’s just about people who are shopping agencies to be patient and thoughtful. They need to ask questions so they know they aren’t dealing with the ones that give the industry a bad rap! Really like what you’re doing Jason, and I will be tweeting your article! Awesome stuff :)
Best,
Meredith
Training is important, but I think CHARACTER is most important. Until these guys that open up these rogue agencies are required to provide a certain personal credit score level and provide extensive background checks on them and ALL senior management, this activity/fraud will continue. I have too much respect for myself, this industry and people in general to not live up to any personal or business agreement. just saying
Good stuff, Rick. It be great if there was some sort of industry wide vetting process, or even something like a Cortera/Yelp just for collection agencies? So those great agencies get rewarded, you know?
Thanks for stopping by!
Hello Meredith, Thank you for your article. Some very good points and information. Also the comments are correct, agency fees are pretty “transparent”, not hidden. Only 5% of over 6,000 properly licensed? I can’t believe that * what is your source for that? In my opinion, Creditors feel agencies are “sketchy” because: 1. Extensive reporting of “bad practices” by “bad actors” in the industry * 2. Fear of losing customers (even customers that don’t pay them) * 3. High fees (40-50% contingency fees, in the mind of most creditors, is high and they are correct, it is high) * 4. Fear of getting sued (a very real fear/collection agencies and the creditors they represent are being sued everyday * Thank you again for your article, Meredith, I am looking forward to more. * Joe Cape/Cape-Able Consultants/614-725-4799 http://www.cape-ableconsultants.com
Hi Joe!
Thanks for stopping by!I sourced the stat in the article, but you can find the info here: http://www.aipsolutions.com/licensedBonded.htm. I have some more literature I can send to you (can’t post too many links here or it marks my comment as spam). In my author’s box, you can find my Linkedin, Twitter, etc. Feel free to reach out to any of those! There is also quite a bit of literature and many conversations out there about hidden fees from agencies. Again these are horror stories (the hidden fees), that you worded perfectly as “bad practices” by “bad actors” in the industry.
You’re list is really, really great! I’m surprised by how many businesses are so hesitant to send accounts to collections in fear of losing the customer, even though the customer is obviously not a very good one! Great stuff, Joe. I really appreciate you stopping by and getting your feedback!
Best,
Meredith