Selecting and utilizing a debt collection agency.(required reading)

What is the best way to select and utilize a collection agency? This is not always an easy question to answer. There really are several potential pitfalls for the unwary credit manager to become familiar with. Three of the key focal points include:

1. Establishing an internal policy that governs the use of collection agencies.

2. Honing in on specific criteria useful in selecting a collection agency.

3. Monitoring the performance of the services provided by the collection agency.

Internal Policy Concerns

Using an outside collection agency is an alternative to use to improve cash flow. There are costs associated with the use of an outside agency that can be offset by productivity benefits derived from freeing up the time for credit managers to work on other urgent concerns. Moreover, the psychological nature of introducing a third party to the collection activity can sometimes induce a debtor to cooperate.

Yet, companies have a clear-cut need to establish internal policy to use when placing accounts with a collection agency. Credit managers are in a position to be tempted with kickbacks or bribes paid by a collection agency to the credit manager for placing accounts with a particular agency. There should be a policy in place that establishes a separation of duties. Auditors would like to be sure that the person who approves the placement of an account for collection is not the same person who could benefit from a kickback when payments are ultimately received by the collection agency.