The 5 E’s: A Creditor’s Guide to Managing Outside Collection Agencies

They compete for your business, they work your receivables, and they make you promises and assurances.  Outside agencies can offer tremendous potential to improve cash flow at minimal cost.  But do you really know what’s going on at the call center?  Can you tell if your business is being worked as well as it can, and that your company’s reputation is being protected as well as it should?  This article gives the creditor the 5 “E’s”: five elementary best practices for managing outside agencies.

1.  Encourage Competition.  Be sure you’re employing more than one outside agency to work your business.  Compare the results of one agency against the others at regular intervals, awarding increases or decreases in market share based on the competitive results.  Let your agencies know how each other is doing often.  Tangible rewards in the form of increased opportunities motivate collection agencies, and competition with other agencies can bring out the best in them.

2.  Ensure Compliance.  Work with your outside agencies to develop a compliance program based on rigorous FDCPA training and regular phone monitors.  Require that the agency test their people periodically in the federal and state laws that affect collection activity on your receivables.  Then create a “phone monitor scorecard” that outlines exactly what you’re looking for in a call, and use this to score the calls you monitor.  By knowing what steps the agency takes to teach their people the dos and don’ts, and by scoring actual calls, you’ll keep your outside agency on the straight and narrow – and your reputation among consumers intact.

3.   Enforce Standards.  Establish set “work criteria” for your accounts.  Provide your agencies with a written policy on how your business should be activated, what kind of efforts it should get, and how frequently they should occur.  Audit your accounts periodically to make sure the agencies are living up to the standard you’ve set.  Pay special attention to issues concerning skip-tracing, rework efforts, manual vs. dialer efforts, and accounts settled for less than the full amount.  Be realistic in your expectations, but demand your money’s worth.  By creating work criteria that cover your accounts to reasonable specifications, you’ll be maximizing both your and your outside agencies’ returns on your business.

4.  Employ your eyes and ears.  Visit your collection agencies’ sites from time to time to get a feel for how the operation runs.  Spend time in the main collection areas watching and listening.  If the environment seems overly chaotic, or if the managers or owners want to tie up your time in private meetings or discussions away from the collection floor, be suspicious.  A good collection operation has a distinct “hum”, the sound of many people dialing and talking on telephones.  This hum is a uniform, somewhat loud, symphony of people dialing, talking on the phone, and seeking help from colleagues.  But it’s orderly, not chaotic, and it denotes intense effort and concentration.  After visiting a few sites, you’ll come to know what the “hum” sounds like, and what a beautiful, human sound it is.  You’ll also be able to tell when it’s absent, and ask why.

5.  Establish Security Protocols.  You entrust your outside agencies with a tremendous amount of personal data about your customers.  A security breach can be catastrophically embarrassing – and expensive.  Be sure your agencies have a “security policy” governing security training, passwords, and the reporting of security breaches.  Inquire about their physical security: locks, alarms, and after-hours access as well as their data security: file permissions, virus checking, firewalls, password aging, and data encryption.  One approach is to require adherence to the ISO/IEC 17779 or the newer ISO/IEC 27002, established data security protocols covering confidentiality, integrity, and accessibility of data in computer systems.

Happy customers are the key to success in any service business, and the collection business is no exception.  By being specific about what your company needs from a collection service – and then performing the periodic due diligence to be sure it’s being provided – you’ll get the best bang for your receivables buck and help keep the industry competitive and adaptive.

Christopher Coelho is a top collection management veteran and president of VISTA Consulting Inc.  He’s also the author of The Complete Collection Manager, scheduled for publication this summer. Visit his website or contact him at www.vistaknows.com.