How to Switch Collection Agencies Successfully

If you’re dissatisfied with your current collection agency due to issues like low recovery rates, excessive fees, or poor customer service, it may be time to consider making a switch. Changing your collection agency can seem daunting, but with the right approach, you can smoothly transition to a new partner who better meets your needs. This article will walk you through the steps of changing your collection agency and provide tips on selecting a new one that aligns with your business objectives.

Note: Most collection agencies will agree to close your accounts if you provide them with one month’s notice. They will only retain accounts where debtors have committed to making payments or are already paying in installments. In most cases, the transition is smooth unless your current agency is highly uncooperative.

Additionally, be very careful before hiring a new collection agency, they may look great on the surface but may turn out to be worse than your existing agency.

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Reasons to Consider Changing Your Collection Agency

Several factors might prompt you to reevaluate your relationship with your current collection agency:

• Low Recovery Rates: If the agency isn’t recovering debts effectively, it directly impacts your bottom line.
• Complaints from your Debtors: Harsh tactics and unprofessional behavior can tarnish your company’s reputation.
• Lack of Transparency: Without clear reporting and communication, it’s difficult to assess the agency’s performance.
• Excessive Charges: Hidden fees and high contingency rates can erode the value you receive.
• Poor Customer Service: Inadequate support can lead to frustration and inefficiency.
• Compliance Issues: Non-compliance with laws like the Fair Debt Collection Practices Act (FDCPA), HIPAA or lacking licenses in certain states can expose you to legal risks.

Steps to Terminate Your Current Collection Agency

Ending your relationship with your current agency requires careful planning to ensure a smooth transition:

1. Review Your Contract: Check the terms of your agreement to understand the notice period and any termination clauses. Typically, a one-month notice is standard.
2. Serve Notice: Provide written notice to the agency, clearly stating your intent to terminate the contract.
3. Identify Accounts to Retain or Release:
   • Retained Accounts: Accounts with active payment plans or verbal commitments from debtors may remain with the old agency until resolved.
   • Released Accounts: All other accounts can be transferred to your new agency.
   • Credit Reported Accounts: If any of your accounts have been credit reported, they should either remain with the old agency or have their credit report entry cleared. If a debtor later disputes the entry and their claim is valid, do you think the old agency will be willing to address the issue after you’ve parted ways?
4. Obtain Documentation: Request a comprehensive list of all accounts being released and ensure they are marked as closed in the agency’s portal.
5. Maintain Access: If any accounts are still active, ensure your login credentials remain active until all matters are settled.
6. Secure Your Data: Ask for sufficient time to download all relevant documents and information before access is revoked.

Sample letter to your collection agency October 10, 2024 RE: ABC Company (and all our locations – ABC Company 1, ABC Company 2 and ABC Company 3) To Whom it May Concern, This letter is to inform you that we have decided to cancel our service with your collection agency (PQRS Collection Agency). We are asking that all of our accounts placed in the last 5 years be closed and returned to us as soon as possible. We intend to assign these accounts to a different collection agency in about 30 days. We understand that accounts with an active payment plan in place may remain with PQRS Collection Agency. All others should be cancelled immediately. In case any of the accounts that are being withdrawn have been credit reported by you, kindly withdraw those entries from the debtor’s credit report. Please send either a “.csv” or “excel” list of accounts including the Our Location Name, Reference#, Debtor Name, Signer name (if different from debtor name), Address, City, State, Zip, Phone#, DOB, Placement Date, Last Contact Date, Current Status, Original Balance due and Balance still due. If any accounts have concerning status or are disputed (ex: notice from debtor’s attorney, threatening to sue) or bankrupt, or deceased, etc, kindly indicate in the Current Status column or in an appropriate “Notes” column. If you are closing all our accounts, kindly allow us 30 days to download our data ( including backup documents we have provided to you). In case you are holding back a few accounts with active payment plan, do not deactivate our access till those remain with you. Seeking your cooperation in this matter. Thank you, John Doe Director of ABC Company

Choosing the Right Collection Agency This Time

To avoid repeating past mistakes, consider the following factors when selecting a new collection agency:

1. Prioritize Recovery Rate Over Low Contingency Fees:

While a lower contingency fee might seem appealing, it’s the recovery rate that ultimately determines your net returns.

Example:

• Agency A: 30% recovery rate, 40% contingency fee.
  • On $100,000 of outstanding debts, you receive $18,000.
• Agency B: 10% recovery rate, 25% contingency fee.
  • On the same amount, you receive $7,500.

Despite the higher fee, Agency A delivers a better return due to its higher recovery rate.

2. Ensure National Licensing and High Online Ratings

Select an agency licensed in all 50 states to handle accounts regardless of where your debtors reside.

If a debtor moves to another state, your agency should be able to continue collection efforts without legal hindrances.

For example: If your collection agency is licensed only in California where you and majority of your debtors reside, and some of your debtors move to Texas or Nevada, your collection agency will not be able to help you.

Select a collection agency with an online Google rating of more than 4.5 and with over 1000 reviews.

3. Demand Robust Technology and Compliance

• Online Client Portal: A secure, user-friendly portal allows you to submit and manage accounts, similar to online banking.
• Data Security: Ensure the agency employs stringent security measures to protect sensitive information.
• Compliance: The agency should adhere to all relevant laws, including FDCPA and HIPAA, and stay updated with local regulations.

4. Seek Industry-Specific Experience

An agency familiar with your industry can tailor its approach to your debtors.

Recovering for a car dealer, doctor or for colleges, each industry has a very different the way their debtors should be approached.

5. Evaluate Customer Service Quality

• Dedicated Contact: Having a single point of contact streamlines communication.
• Support Team: A central client support team can provide additional assistance when needed.
• Responsiveness: Prompt and effective communication is essential for a successful partnership.

Caution:

Be sure to inform your new collection agency about any accounts previously handled by the old agency, and tell them that you have a written confirmation that those accounts have been officially closed by the old agency. Do not assign disputed, bankrupt, or deceased accounts to the new agency; instead, write them off. Additionally, avoid transferring accounts that are over two years old.

Transferring accounts to a new collection agency can be risky if not done carefully. For example, having two agencies pursue the same account is illegal. Ensure all accounts are properly closed before making the switch. There may be other scenarios not covered here, so it’s important to seek guidance from your new agency or an experienced attorney during the transfer to avoid legal complications. If you’re unsure about an account, it’s best to avoid transferring it.

Switching collection agencies requires cooperation from both agencies. If your old agency isn’t providing adequate support, consider leaving existing accounts with them and assigning only new accounts to your new agency. Debt collection is governed by complex laws, and transferring uncertain accounts could pose legal risks for you.

Conclusion

Changing your collection agency is a significant decision that can positively impact your business’s financial health. By carefully terminating your current agency and thoughtfully selecting a new one, you can enhance debt recovery rates, ensure compliance, and improve overall satisfaction. Remember to prioritize recovery rates, ensure national licensing, demand technological excellence, seek industry experience, and value superior customer service in your new agency. With these considerations in mind, you’re well on your way to forging a more productive and profitable partnership.