How to find a third-party debt collection agency that’s right for your business

The third-party collection space can seem like a minefield. There’s veteran agencies who have been collecting the same way for decades, mixed in with more progressive ones taking steps to digitise their offering. This, coupled with the recent boom in debt collection startups seen over the last few years, the pool of collectors is overflowing.

Here we break down what to look for in a third-party partner, red flags to watch out for and how to differentiate between all the above.

The essentials

Before we jump in, let’s refresh on how we define third-party collections.

Third-party collections: When a creditor or lender partners with an external agency to collect overdue accounts under the agency’s brand and name. The agency takes responsibility for recovering the debt. Typically, they work on a contingency basis, taking a percentage of the overall amount recovered.

Six things to look for in a third-party collections agency

To help you sift through the potentials, keep it simple with these six essentials to cover all your bases.

1. Values & philosophy

How your collections partner understands debt and more importantly, people in debt is the fastest way to check whether your values align. The debt collection industry has been known to place profit over people, with harmful tactics like harassing phone calls or threatening tactics. The damage of these methods is long-lasting, with 2 in 3 people deeming their experience with debt collectors as ‘stressful.’ Poor practices can damage your customer relationships and impact your brand & reputation, as any customer entering into a collections journey through you will automatically view your provider as an extension of your organisation.

2. Collections performance and engagement data

Likely already at the top of your list, strong collections performance is an essential across key areas like liquidation and spindown. What’s often overlooked however is how data on your accounts’ performance is communicated. The time your internal team spends going back and forth with a collections provider is worth considering, so make sure your agency is efficient in their reporting, with the ability to monitor & share advanced data. Whether this is through a monthly review or more advanced means like an analytics dashboard, receiving real-time data of your accounts’ performance is key.

3. Expertise

Whether you’re in the energy or buy-now-pay-later sector, it’s important to look for a collector that has demonstrable experience with your customer base and debt type. Established agencies will work with clients from multiple industries, supporting customers with varying account balances in different stages of their collections cycle. This means it’s likely they’ll have experience within your industry, with data, insights and learnings that can be applied to your accounts - enabling you to leverage their expertise to get the most effective return.

4. Compliance

Scrutinise potential partners on their compliance processes, including how they monitor Quality Assurance, how they follow consumer protection laws and contact limits, along with how they handle complaints and identify vulnerable customers. Be certain in how compliance is built-in to their practices, as oversights can have far-reaching impacts on your business and reputation.

5. Digitisation

Today’s customers look for a digital friendly, self-serve, real-time experience. Look for collections agencies who can meet these expectations - or run the risk of low engagement rates. Technology has transformed the collections industry through the introduction of digital channels and data science, and the use of artificial intelligence is not far behind. Find a collector who has a solid grasp of how to use these tools across recovery cycles, but scrutinise carefully. Many claim the ‘digital’ label without the operations to back it up, so ask for the specifics like omnichannel communications, personalisation, self-serve capacity and payment options flexibility.

6. Future potential

Whether your business is rapidly growing, or you have increasing numbers of customers entering into collections due to macro economic factors, you need an agency that can support influxes in account volumes over time. Third party agencies reliant on headcount or traditional call centre operations will struggle to keep pace. Agencies with digital channels or self-serve embedded into their operations will be best placed to meet increasing needs while minimising any impact to service or performance. To take it one step further, ambitious businesses will want to look for a partner who has the ability to scale in real time. This gives room to expand the relationship into new products or markets, and reduce the complexities of managing multiple collections partners.

Red flags

Now you’ve got a clear idea on what you need, let’s run through what to watch out for:

• Poor customer and client reviews: search online and ask around to get a sense of the agency’s reputation. Be aware of those with negative reviews, as pursuing a partnership here has the potential to harm your own reputation.
• Traditional mindset and aggressive tactics: those that rely on traditional practices with little regard for the customer experience should be an immediate red flag. Ask how their Customer Service agents are incentivised, and what practices are in place to provide a customer experience that meets modern expectations.
• Attitude to compliance and consumer outcomes: all licensed agencies should have a firm grasp of all applicable regulations, with a dedicated internal Compliance team overseeing robust processes. Without this, collections activity is at risk of non-compliance or negligence which can result in negative media coverage, legal action or fines. Keep an eye out for debt collection agencies with a history of this.
• Lack of transparency around fees: third-party collections is the most cost-effective way to handle recoveries as most operate on a contingent basis, keeping a percentage of the overall amount collected. Discuss the commission fee, billing practices and how payments are remitted back to you.

Unwillingness to provide testimonials or case studies: highlighting examples of great practice should be a key staple when speaking with potential partners. Those who shy away from this or fail to provide examples backed with data should raise doubts on your end.