When it comes to collecting debt in 2023, forget Clark Kent. This is a job for Superman.
The debt collection landscape is changing at an unprecedented rate these days. Credit grantors need their Accounts Receivable reined in, and are under pressure to do it at the lowest possible cost. In places like the Maritimes and across Canada right now, debt has suddenly become substantially harder to collect, making recovery an urgent matter for businesses. As you may know, the very best collection agencies work on a basis of no collection, no charge. They only get a percentage of what they collect, which is highly motivating—if they’re good at it.
But think about what happens if that commission is whittled down by companies trying to get the best value for stakeholders. Naturally, the collection agency, already working in a low-margin environment, is forced to create efficiencies to remain profitable, which invariably means focusing on the most collectable accounts, conducting fewer searches, and in general allocating minimal resources and time to all the harder-to-reach fruit.
This brings up an important business fact: there are always tradeoffs. In commercial debt collection, there can only be the illusion of paying less to get more. It’s time for many procurement departments to rethink their approach and perception of value.
What matters at the end of the day is never so much the commission rate as your Net Back.
Net Back is the total dollars returned to you on all the accounts you submit for collection, after commissions and any other fees. If your collection agency fails to collect on many of your accounts, even a 1% commission is suddenly a terrible deal because you’ve lost precious time and the outstanding debts are probably no longer collectable. A low Net Back can burn you at both ends.
So, by negotiating cut-rate debt collection you’re definitely shooting yourself in the foot. Sure, on very large commercial debt collection files there can be some efficiencies of scale. In the consumer debt collection world, not so much: each account is usually a relatively small amount requiring greater effort per dollar owed, working with some of the most transient debtors. For that reason, consumer debt is usually conducted at a higher commission rate than commercial debt collection.
You need true professionals who know how to collect quickly and care about your brand, because debt collection mistakes WILL come back to haunt you through negative reviews and social media, costing you future sales.
That’s why you want only skilled negotiators working on your behalf. The most valuable experts in any field do not reduce their fees to attract clients. They earn their fees by providing the best value, in this case the greatest Net Back on all your overdue accounts.
It’s the old law of business that you get what you pay for, in a realm where there are no second chances. Just like a good accountant or a good lawyer, a good collection agency will save you money and make you stronger. It’s the cut-rate ones that cost your business and your brand the most in the long run.
So the best deal in debt collection is always the one that ends in success. Forget about rates (as long as they’re on par with top producers in the industry). Look for a collection agency that has all the things it takes to consistently and quickly bring you the highest Net Back.
Ready to collect some debt? Contact us and one of our mild-mannered experts will get you started faster than a speeding bullet! Or download our 10 Debt Collection Pro Tips (link below) and empower yourself!