So the old business adage says, “What gets measured gets done.” But how to measure the effectiveness of collections has long been a matter of debate in the credit profession.
What isn’t debatable is the need for collections. The Economic Census report reveals that fees earned through commercial collection activity in 2002 represented 28.7 percent of total industry receipts—up from 21.9 percent in 1997. Over the same period, consumer collection activity declined to 67.6 percent of total receipts in 2002 from 73.7 percent in 1997. The census report also shows that 127,605 individuals were employed by collection agencies nationwide in 2002, up by more than 50 percent from 84,333 in 1997. Meanwhile, industry receipts rose 54 percent from 1997, to a total of $8.8 billion in 2002.
Given these trends, it is clear that most casinos—no matter how competent—will at some point end up turning to a collection agency.
Now I know how frustrating it is to deal with collection agencies that promise you 60 percent recovery success—yeah, right! I was born at night, but it wasn’t last night! These agents promise that they will work for you, that your collections will be their top priority, that blah, blah, blah. But with so many agencies promising the same thing, how do you know which one to choose?
As with any decision that will ultimately impact your bottom line, there are many variables involved in selecting a collection agency—or agencies—and it shouldn’t be taken lightly. Following these 12 steps as you narrow the field, make your decisions, and maintain those relationships will have your operations well on their way to collection agency success. (Note: Some of the following information is from The Complete Guide to Credit, Receivable and Collections Best Practices, 2007.)
12 Tips for Collection Agency Success
1. Use several agencies. Never depend on just one collection agency, no matter how effective you believe that agency is. Three collection agencies should provide adequate coverage.
2. Look at service, not just cost. When selecting and evaluating an agency, don’t focus entirely on fees. Low prices may not translate into high returns. Agencies that offer low fees will sometimes only make a minimal effort to collect, grabbing the low-hanging fruit while leaving the difficult accounts to others.
3. Understand the fee schedule. The agency’s fee schedule should be clear and easy to comprehend—and make sure you understand it! Also—and this is a no-brainer—fees should be contingent upon the agency collecting something for you. If the agency is unsuccessful, it earns nothing.
4. Check references. When checking references, be sure to ask them the following questions:
• Would you use the agency again?
• How long have you been using the agency?
• How would you rate the agency on a scale of 1 to 10? (Recognizing that few people will give the top rating to anyone.)
5. Visit the agency. Once you have narrowed down your choice, visit the agency unannounced to see how its day-to-day operations are run. (Doing this periodically once an agency begins collecting for you isn’t a bad idea, either.)
6. Ensure the agency is bonded. This gives you some security in the unlikely event of fraud occurring while the agency is handling one of your accounts.
7. Check the agency’s professional association memberships. Ask all potential agencies how long they have been in business. While all new businesses start somewhere, they don’t necessarily have to start with your company. Find out if the agency has established itself by becoming affiliated with some of the more common associations, like the Commercial Law League of America (CLLA) and the International Association of Commercial Collectors (IACC).
8. Monitor results. Once you have selected your agencies, distribute your placements among them and periodically monitor the results. If an agency’s results warrant it, steer a larger portion of the collections pie in its direction. And, obviously, replace an agency that posts consistently poor results.
9. Don’t hang on to non-performing accounts. To help ensure an agency’s success in recovering your money, be sure to turn your accounts over while there’s still a chance of collecting. Many companies are reluctant to turn accounts over because they are afraid of alienating a customer—or of paying agency fees. But the longer you wait, the worse. Once accounts are six months past due, they are rarely collectable, even by the best agency. (See Chart 1.)
10. Negotiate a fee reduction for “early” accounts. Don’t hesitate to approach your agencies for a reduction in fees for all accounts turned over early. Sixty days is good benchmark.
11. Shop accounts around. Don’t assume that because one agency can’t collect on an account, it can’t be collected. Some agencies will take accounts that have already been worked on by others. You might have to pay a higher fee for this service, but remember that’s only if they collect!
12. Don’t commingle collections. Make sure your collections are held in a separate account. Under no circumstances should your funds commingle with the agency’s money.
Al Zayas is currently a Director of Cage and Credit Operations at Cache Creek Casino Resort. He has 27 years of experience in banking, finance and casinos. He can be reached at alzayas@netzero.net.