Large or small, sooner or later, every business that sells on credit will have a collection issue. Selecting the right collection firm is central to overcoming that challenge and a critical long-term factor in the success of your business.
Identifying a collection firm that understands your industry, processes and expectations will ensure that your company goes beyond simply identifying a solutions provider, and finds a genuine partner to help with your long-term goals.
What’s more, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, implemented in February, ushered in a new era of unprecedented emphasis on efficiency and results for collection agencies. In light of the CARD Act, the collection industry is specifically focused on finding ways to sustain revenues while adapting to a significantly altered environment, since an increase in regulations means an increase in the cost of doing business.
In their pursuit of a sustainable competitive advantage, companies are well advised to include these four key questions when evaluating potential collection partners.
1) What is the experience level and reputation of this collection agency within my specific industry?
Experience, prominence and brand are among the characteristics that clients must closely examine when considering collection partners. How is this firm regarded among its peers, among its customers? Another very important question related to reputation is how well a collection agency treats its client’s customers. Clients are looking for collection firms that have a reputation for treating their clients’ customers with dignity, patience and understanding. It is a distinguishing characteristic that is essential.
In judging experience, companies will want to know not only whether a collection firm can deliver breakthrough numbers but how they achieve these results. They will want to know a collection agency’s overall success rate, which is not measured by liquidations and gross cash alone but adherence to quality in every aspect of the operational delivery.
Companies need to evaluate experience and strengths in a variety of important areas extending across the debt lifecycle from pre-chargeoff to late-stage, post-chargeoff collections. Agencies claiming breakthrough numbers in these areas must be prepared to show how they accomplish this, since knowing what you do well and how you do so leads to consistent performance.
From a reputational perspective, it is also important to assess the degree to which legal disputes are a factor at an agency. By the nature of the work, services firms, including collection agencies, will inevitably find themselves involved in a dispute of some kind at some point.
However, an unrelenting and excessive track record of litigation constitutes a distraction for management and can be an indicator of deeper systemic problems. This should be a warning flag in your consideration of a collection agency.
Another important differentiator is whether a firm fully understands the distinctions among card issuers as it relates to customer types. Since one issuer will not necessarily attract customers with the same level of sophistication as another, selecting a collection partner that is sensitive to this is important.
Assessing experience, prominence within the industry and overall brand recognition are key initial barometers in determining which collection agencies belong on your shortlist.
2) How well can I gauge the operational excellence at this agency?
Success for collection providers ultimately translates into operational efficiency and excellence. Review what systems, practices, protocols and standards are in place, and how these factors are measured at potential collection firms. That means looking for superiority in these crucial areas:
• Experienced staff. Look for employees with deep industry knowledge and expertise, a hallmark of operational strength. Ultimately, it is the front-line staff who bears the weight of executing day-in, day-out.
• High retention rates. Attracting talent is part one. Part two is retaining that talent, which requires distinctive cultural attributes at a collection agency. Are its employees satisfied? Do they stick around or is there high turnover? Among the features that distinguish organizations is the ability to provide top training that arms agents to address myriad situations and concerns among consumers. This can be aided significantly in a culture that reinforces teamwork and mutually shared goals.
• Rehire rates. Another metric not often discussed is the quotient of talented individuals who have left the firm only to return after an interval. This reflects the culture of the organization and can indicate the existence of a positive work environment, an important addition to a culture driven purely by financial interests.
• Sound business intelligence and analytics. Collection providers must be unrelenting in their ability to look inward and continually improve and enhance their business practices based on a closed feedback loop. Equally important is the ability to analyze and assess customer-centric processes for ways to wring cost and/or time savings from the equation.
• Innovation and investment. Operational excellence requires technology innovation at the core of an outsourcing platform. How a collection agency employs its technology systems is an essential ingredient in upholding a sustainable competitive advantage. Using online communications to resolve problems instead of real-time phone calls, for example, imposes less fatigue on people. Investing in these kinds of technologies is the ongoing cost of success. The day a collection agency stops investing is the day it begins to lose talent and competitiveness, which seriously impacts growth.
• Rapid expandability. Another critical success factor is the ability to add capable capacity to the organization fast. An inability to scale up quickly with a deep bench of talent in order to meet a client’s needs is a certain deal-breaker in the collection business.
3) What geographic options are available for back-office service delivery and how does that align with my cost structure?
Depending on the requirements of the engagement, the ability to offer cost-effective, geographically diverse solutions allows a collection partner to maximize profitability lowering costs, increasing liquidation rates, if not both.
Are you considering a single-location provider or one with multiple geographies that can be leveraged to drive profitability? Possessing a suitable “right-shoring” solution is another driver of breakthrough results for customers.
For example, in some cases, it may be important to have a provider operating in or close to your own time zone, in which case a near-shore solution is called for. In other cases, access to offshore solutions may be the most cost-effective route.
Whether it is more effective to work with a provider that can provide a variety of options (U.S., Asia, Latin America, and/or global) depends on several factors. In any event, the ability to employ on-shore, offshore or near-shore capabilities affords depth and options that can have a significant impact on the bottom line.
4) What kind of certifications has this collection agency earned?
Industry certification is the foundation upon which standards for process, operational and service delivery reliability, integrity and excellence are set across the industry. Programs are designed to guide the development, implementation and adherence to industry-specific standards that foster best practices and policies.
ACA International, the association representing the nation’s collection agencies, offers a certification program called the Professional Practices Management System (PPMS) - a management system for collection agencies that comprises 17 basic elements and serves as a standard for most of the industry.
Certification to PPMS standards requires submission to a rigorous audit and review of procedures and practices by independent third-party accounting and audit organizations hired by ACA.
Programs such as PCI DSS provide certification standards that address security management and related policies, as well as procedures, network architecture, software design and other critical measures established to help organizations protect customer account data. This is a mission-critical endorsement at a time when client sensitivity to the potential for security breaches and fraud runs higher than ever before.
Some certifications, such as SAS 70 Type II audit, verify that collection agencies have the appropriate internal controls and processes in place to deliver high-quality services to clients. Other standard-setting programs, such as Six Sigma, span industries, setting forth standards of excellence at an enterprise to systematically enhance business processes to better meet or exceed customer specifications.
While certifications may not necessarily be industry requirements in every case, agencies that proactively meet these standards for best practices are demonstrating a distinguishing level of commitment and warrant special consideration over those that do not.
Certifications and a record of adhering to those standards are essential to look for in assessing potential collections partners since the most recognized standards exist in order to verify process excellence, the highest quality of client service, and produce a measurable, tangible business gain for customers.
A robust, reliable and cost-effective collection solution is a key success factor for any company that relies on credit to conduct business.
Among the key considerations that must be examined in making that decision are brand reputation, operational excellence, geographic options and adherence to industry certifications. The bottom line: it is incumbent upon businesses to choose a collection agency that displays the vision, commitment and resources to grow with them, constituting not just a provider relationship but a true partnership.
Arjun Mitra is senior vice president at Firstsource Solutions.