Once again the industry of professional debt collection is being defamed by the “rogue players”. Normally I just remain silent and let these stories blow over. After all, we don’t even remotely resemble these agencies in scope or style. This time I am choosing to speak up. I have grown weary of hearing about these same agencies engaging in practices that make the rest of us look like criminals.
How these places even got away with the violations in the first place boggles my mind. The way I understand it is that the Department of Commerce – our regulating agency in Minnesota- requires us to perform a background check that includes a felony search etc…
I think I have a theory. My concern is that they are trying to hire “cheap” collectors so they can offer rates that are ridiculously low under the guise of saving their clients some money. If that’s the case, the plan is flawed from the onset. Not to mention dangerous.
Here’s the bottom line: If I hire “cheap” collectors who will work for half of what their counterparts will, I can definitely save some payroll costs and potentially pass that along. What I would be missing, however, is the lost revenue from debts that remain uncollected. You see, “cheap” collectors are like “cheap” tires. They make a lot of noise, and won’t get you very far. They don’t have the vital skills of negotiation and diplomacy needed to properly collect a debt. Good collectors, on the other hand, can deal with customers in a professional and friendly manner while actually collecting more money!
It’s the theory of “net-back”. Net-Back is the actual amount of money a creditor receives at the end of the collection cycle. This is much more important that the percentage price they agree to pay at the beginning.
Here’s an example:
This scenario is based on both agencies collecting roughly 20 to 24% of a total placement volume of $1,000.00. The same scenario applies for any dollar amounts.
Agency 1 Contingency Fee $ Placed %Collected Fee Paid Net-Back
30% $1000 20% ($200.00) 60.00 $140.00
Agency 2 Contingency Fee $ Placed %Collected Fee Paid Net-Back
35% $1000 24% ($240.00) 84.00 $156.00
You might ask:
“Why would Agency 2 (Summit Account Resolution) collect 4% more?”
Our answer: “Employee motivation, skiptracing and the quality of the collection environment.” Take note that while Agency 1 is priced at 30% (or 5% lower than agency 2), Agency 2 only had to collect 4% more than agency 1 to make your net back $16.00 more! What if agency 2 beat agency 1 by 6 or 7% or more? It doesn’t take long to figure out what the cost benefit is.
In my humble opinion, the commoditization of collection services has made it very difficult for many agencies to compete. As a result, some agencies have chosen to hire undesirable collectors to mitigate the cost of competition. Bottom line, with collection services (along with pretty much everything else), you DO get what you pay for.
Categorised in: Our Blog
This post was written by Summit AR