How to Choose a Collection Agency

Hiring a collection agency is the next step when you've exhausted your other options for getting paid.

Keep in mind that a collection agency represents you. Everything they say and do reflects on your business.

Professional collection agencies have a tough job to do, and they know that demonstrating professionalism while being firm will produce better results than rudely hammering away at your debtor.

A good collection agency will exhaust all reasonable methods of getting your client to pay voluntarily before advising you to take legal action. If an agency says that they will "guarantee" successful collection ... run!

Tips for choosing the right collection agency

1. Make sure the collection agency is properly licensed and follows the law. Courts are increasingly holding businesses responsible for the illegal activities of the collection agencies that they retain. That's right - you could end up on the receiving end of a harassment suit!

Avoid problems by checking out the collection agency's record with the appropriate state regulatory agency. Make sure they're complying with state statutory requirements for licensing and bonding, and note any significant complaints that cause your antenna to go up.

2. Ask whether the collection agency is a member of a respected association. One national association that provides training and standards for the collection industry is the Consumer Data Industry Association (CDIA). Members must meet and maintain standards to be admitted.

3. Review the collection agency's methods before retaining them. Examine their collection form letters to determine whether they will be effective with your particular customer base.

Letters should be firm, not threatening. A good business collection letter is often all it takes to jar your client into paying their bill.

Also inquire about how the agency's collectors are trained, and how they comply with collection practices as regulated by the Fair Debt Collection Practices Act and state regulations.

4. Make sure the collection agency is licensed, bonded, and insured.

5. Ask for references. Even better if they can refer you to other clients in businesses similar to yours.

6. Get it in writing. Most collection agencies work on contingency, meaning you only pay them if they collect. Make sure that you're clear about the percentage you'll be sharing with them. Fees range from 10 to 50 percent, with 25-35 percent being about the norm (depending on the amount of the debt, extent of services required to collect, etc.). Make certain that you clearly understand all fees, terms, and conditions before signing a written agreement.