I’m a huge proponent of research: when I buy a vehicle, when I hire a new employee, implement a new business system or make any important personal or work-related decision, due diligence comes first. Good chance you have a similar philosophy: hey, you’re reading a blog post about vendor screening!
But what about when you need to hire a debt collection agency? At some point your business will probably come across a client who won’t pay your bill despite continued, even exasperating efforts. Rather than write off the debt, you should be hiring a collection agency to bring it in. (In fact, you should have a collection agency ready to take on any overdue debt, but more on that later...)But of course you have concerns, especially if you've never done this before. How do you know if a collection agency will reflect your business principles? Will their collection tactics harm your brand reputation or put you at risk in some other way? As with other areas of our lives, it’s better to do initial research to avoid problems down the road.
Here are eight questions you should ask a collection agency as part of your research process before handing over your first customer account.
1. Do You “Get” My Industry?
Debt collection agencies sometimes specialize in certain industries or niches. Ask the agency what type of business or industries they primarily serve and the types of debtors they often deal with. If a collection agency works with your industry or business models that function similarly to yours, it could increase your chances of getting paid. Be wary if the agency suggests that all business debt is the same—it isn’t.
2. Are You Licensed to Collect Where My Debtor Is?
In Canada, consumer collection agencies must be incorporated and licensed within the province that the debtor is located. As well, each province has legislation in place to provide some assurance the account will be handled professionally and ethically. In all Canadian provinces and territories, a business must be licensed under provincial legislation, and must post a substantial surety bond. To collect consumer debt in Quebec, a collection agency is additionally required to also operate a physical office in the province.
If an unlicensed or improperly licensed agency works on your behalf, you are exposing yourself and your company to potential liability.
There’s a chance an agency (licensed or not) will tell you it is. If you have a debt collection agency in mind, check up on it yourself. To make it easy, here are direct links to search any agency by name in each Canadian province and territory. Click on the one where the debtor resides:
Tip: if you are researching MetCredit, also try “Metropolitan Credit Adjusters” or in Québec search “Agence de recouvrement de crédit Métropolitain.”
3. Are You Insured?
There’s always the possibility that the debtor may feel he or she is being treated unfairly and sue the collection agency. Be sure an agency you hire carries Professional Liability insurance. While not a requirement for Canadian collection agencies, this insurance will provide coverage should the agency get sued while working on your accounts. Don’t assume third-party insurance is in place, and it’s always wise to carry your own Professional Liability insurance policy. If a judge were to find you failed to deliver as promised, your business would be liable—not your collection agency!
4. What Tactics Do You Use to Collect Debt?
To maintain your brand reputation, it’s very important to preserve, as much as possible, positive customer relations (for more on this topic, check out my popular blog post on business reputation management).
Maintaining a positive relationship means partnering with an ethical collection agency. One that tries to find solutions for your clients, is tactful and professional, and never disrespectful. There is only one Canadian collection agency that focuses deeply and passionately on “Respect for the Individual.” (I will leave you to guess which one that is…)
Talk to the agency about the methods agents use when collecting debts and, together, agree on a collection strategy you can support. And it never hurts to ask the agency for references, or request an office tour. Check out online reviews and BBB ratings (although very few agencies are accredited, MetCredit has an A+ rating and has held BBB accreditation continuously since 1974.)
5. How Easy (or Hard) is it to Submit Accounts?
Starting out with a new collection agency isn’t rocket science but it requires some basic info from you. Ask the agency how long its process usually takes, and what information you will have to provide to get started, and how subsequent accounts are to be submitted. Normally it’s a paper-intensive process. MetCredit offers a one-of-a-kind secure online system that allows you to load debtor information directly. No hassles or missed information, and you can do any time—day, night or on weekends. Click here to get set up quickly: you’ll love the unmatched simplicity and ease of use!
6. Can You Locate a Debtor Who Has Disappeared?
Some debtors will go to great lengths, even move around to avoid paying bills. Good collection agencies employ skilled skip tracers and techniques to track down absentee debtors. This means the agency legally accesses various databases and other information sources to locate a debtor who has (often deliberately) left no forwarding address. Effective skip tracing significantly improves the chances of collecting from an absentee debtor.
7. How Much Will Your Services Cost Me?
Once you’ve found a debt collection agency that might work for your business, you’ll want to know exactly what its services will cost. Don’t be surprised to discover that each agency has a somewhat different (although probably similar) fee structure.
For example, some collection agencies charge a percentage based on the amount they collect, while others charge a fixed rate based on the size of the debt. It’s normal for the type of the debt to also be a factor, based on the risk factor. For example landlord and tenant debt collection, consumer debt collection and commercial debt collection can each have different commission rates. The very best collection agencies cover all costs, including fees and disbursements upfront, and won’t charge you unless they successfully collect. The exception is when a situation requires legal action to recover debt. In such cases your advance permission is required prior to to initiating legal proceedings and incurring fees to you.
aBonus question: ask a prospective collection agency if it has an in-house legal department to minimize fees in those rare situations where debt litigation is needed as a final recourse.
8. What is the Collection Agency’s Success Rate
I mentioned that fee structures are generally fairly similar. Where the variance comes in is success rate. Really great collection agencies work quickly and effectively. At MetCredit, our goal is to collect within two days of beginning to call—and we usually nail it. An agency may not charge you if it fails, but failure seldom leaves you with a second chance.
Research Diligently—But Don’t Wait
Let’s face it, dealing with debtors on top of running a business can be frustrating and slow, not to mention a drain on your resources. It’s always better to hire an experienced and ethical debt collector than letting a customer get away with not paying you. And it’s a statistical fact that your likelihood of collecting a debt decreases by the day.
So don’t wait to bring a collection agency on board. Since most Canadian provinces having a two-year statute of limitations on debt collection, I encourage you to do your research before the situation is urgent to find the debt collection partner who best suits your business needs based on the above questions.
If you have questions or want more information, always feel free to give me a call. And for more information to help in choosing a Canadian collection agency, be sure to click on the link below to download a helpful guide.