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Last Resorts for Debt Collections--Option 1

Businessman counting money
An agency will typically keep 1/3 to 1/2 of all money collected.
Photo © iStockphoto/tiburonstudios

Collection Agencies

If you prefer not to put any more effort into collecting a debt, and you are willing to accept only a portion of what is owed to you, then turn the account over to a collection agency.

Most collection agencies handle a large volume of claims and work on a contingency basis. The agency will typically keep from one-third to one-half of all money collected. But don't choose a collection agency on rates alone. You'll be better off if you collect 60 percent of debts at normal rates than only 10 percent at discount rates. Instead, choose an agency with a good reputation in your area, and one that offers a wide range of services.

Choosing Your Collection Agency

Make sure the agency is experienced in dealing with your types of accounts—that is, retail or commercial or both. Make sure to check a collection agent's references, particularly from pest control firms or similar businesses such as lawn care.

You don't have to commit to a single agency. Shop around. Try different vendors. See which one produces the best return. Even if you already have a collection agency, send a few delinquent accounts to a different agency just to compare.

ALERT: Don't send the same account to more than one agency, it's illegal.

When you are evaluating different collection agencies, be sure to review the agencies' methods of collection. Check out the following:

Collection Letters
Examine the collection letters that the agency uses. Are you comfortable with the wording? Will the letters be effective with your customers?
Telephone Collections
Ask about the training telephone collectors receive to ensure their methods are professional and respectful.
Skiptracing is the process of locating a debtor who cannot be readily located by the usual telephone or mail procedure. Skiptracing is initiated when:
  • An overpayment notice or bill is returned as undeliverable, or
  • Followup notices (bills) are returned as undeliverable, or
  • Followup contact attempts by telephone reveal the address or telephone number of record is no longer valid.
Make sure the collection agency has access to online search capabilities and telephone databases to help locate these debtors.
Hardship Consideration
Some debtors need special consideration. Ask how the agency evaluates excuses or hardship.
Geographic coverage
Ask candidate collection agencies what they do if a debtor is located in another state, and which states they can collect in. How does the agency handle accounts in jurisdictions where they are not licensed. Some agencies forward these accounts to other agencies, which can save you the hassle of shopping for agencies in other states. However, forwarding accounts will result in a lower percentage of the collected debt being returned to you.

Other last resort collection options:

Back to main article, Last Resorts for Debt Collections

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