Taking the Pain Out of Collection Claim Processing Part I

Most credit managers or directors manage multiple collection agency relationships for their B2B collections, yet the process of managing these relationships can be highly manual and complex creating lack of efficiency and transparency for both the company and agency.

For many companies I come across, the placement of claims with a collection agency is a critical stage in the pursuit of past due payments. When one of your customers lets their accounts go past due and then fails to pay despite repeated reminders, your firm has already absorbed the cost of goods sold, financing expenses, and collection costs. Upon placing the debtor with a collection agency, any recoveries of the past due amount will incur collection fees, but that is better than the alternative of no recovery and a bad debt loss. Agency placement is often a critical step required to get certain debtors to respond to requests for payment.

The key to the collection claim placement process, therefore, is to maximize recoveries. Because receivables rapidly deteriorate in value once they hit 60 days past due, and even more so at 90 and 120 days, there is value in placing claims sooner rather than later. Claims placed at 90 or 120 days (the point at which many creditors give up on internal collection efforts) will have a substantially higher collection rate than claims containing year old receivables. Older receivables also incur higher contingency fees.

By introducing risk analysis into the collections process, you can help determine which accounts to place and when to place those accounts with an agency based on risk profile.  In a related blog, CJ Wimley, discusses how this can work using statistical modeling.

If you are placing accounts with an agency, it is important that you select an agency that has experience collecting from your market segments and therefore understands your industry and will do a better job than an agency without that background. By the same token, an agency that is willing to get to know you and your operations will do a better job in the long run than an agency that has no interest in what goes on before a claim is placed. In short, you want an agency whose expertise can help you solve the riddle of realizing optimal value from your receivables portfolio.

To maximize recoveries, you also need to thoroughly document your collection claims as well as work closely with your collection agencies. For this reason, many clients and agencies are migrating toward technology that affords portal access and significant advances in networking. This is resulting in a dramatic improvement in claims recovery.

Stay tuned for Part II where I will discuss how to use collection agencies as a strategic resource….

Are you currently managing multiple collection agency relationships? I’d like to hear from you…