How to Hire a Collection Agency

Okay. You've made the decision to hire a collection agency. You're outstanding debts are overwhelming you and you need professionals who can get the job done.

What steps do you need to perform to hire an agency?

You need to do some research. Probably researching the various collection agencies online is a good place to start, but if you can't access online resources, you can also use your local phone directory. Among the things you want to find out are some of the rules and restrictions your state might have concerning collection agencies.

There are two good reasons you should know at least a little bit about the laws regarding collection agencies for your state: One, you can set your own expectations on what an agency can and can't do for you in your state. Two, knowing the laws can help you assess whether an agency is telling you the truth about what they can do for you or not.

Along with researching the laws in your state, you need to find out which agencies are licensed to work in your state. Some agencies are licensed in only one state while others can practice in many states. Likewise, your state may not even require an agency be licensed. You should know this information.

Not all collection agencies are equal. One agency might specialize in corporate collections dealing with businesses. Another might specialize in collecting from individuals. You don't want to hire an agency specializing in corporations if you're trying to collect from individuals and vice versa.

Additional research will include checking with the Better Business Bureau and getting reliable references on how your prospective agency performs. Make sure the recommendations come from businesses that are similar to your business.

Once you've selected one or more collection agencies you're interested in, you'll need to contact them. You definitely want to look into how they do their business. If they use form letters to contact the debtors, you probably want to examine the letters. Likewise, look over the phone scripts the agency uses.

After selecting the agency you want to hire, you'll need to negotiate the price. The agency may work on a flat-fee basis; percentages of the amount owed you, or even purchase the debt from you at a steep discount.

Be careful about choosing an agency with a lower percentage and a correspondingly lower recovery rate. You need to consider both the recovery rate and percentage when choosing an agency. For example, if you were to turn over a $100,000 debt to an agency with a 60 percent recovery rate and a 35% commission, you'd end up with $39,000:

You calculate this by multiplying the total debt by the recovery rate: 100,000 * 0.60 = 60,000.
Then, you multiply the amount recovered by the commission rate: 60,000 * 0.35 = 21,000.
Finally, you subtract the commission from the debt recovered: 60,000 - 21,000 = 39,000.
Using the same calculations, you can see that you'd be better off using an agency with a higher recovery rate (and a correspondingly higher commission) than an agency with a lower rate and commission. For example, using the same debt, $100,000, and a 40 percent recovery rate at only a 25 percent commission, you'd only receive $30,000.

Once you've hired the agency, the next step you need to perform is to provide the agency with everything you have on file concerning the debt. The more information the agency has to start with, the better their chances of debt recovery.

After you've finished hiring the agency and providing them the information they need, all you need to do is sit back and let the agency work for you and collect the overdue debts owed you.