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By: N. Nathan Neuman, Esquire

President, National Judgment Investment Corp.

700 Lake Drive

Ambler, Pennsylvania 19002-5084

Tel: 800-838-0509

Fax: 215-646-9520

A common dilemma facing all businesses today is the recovery of its delinquent accounts receivable. Although most organizations have some type of internal debt collection process, even the most efficiently run business will ultimately encounter some form of delinquency.

When delinquencies begin to occur, a two step analysis should be initiated. First, a decision should be made as to when the accounts should be placed with an agency. Typically, most businesses place accounts after they become 90 days past due. The second and more important decision is which agency to choose. Indeed, because your organization's unpaid accounts represent monies due you, the selection as to which agency to use may be one of the most important business decisions your company will ever make. Accordingly, the selection of an agency should be based on numerous factors:

Most states do not have requirements for collection agencies to operate within their jurisdiction. Accordingly, agency activities go unmonitored and unregulated. As an inevitable consequence, many collection agencies are founded each year without the proper infrastructure to adequately perform the tasks which they are entrusted to do. The bottomline here is to know as much about your agency as possible before placing accounts with it.

Your agency should be able to provide you with reports acknowledging the accounts placed with it. These reports should be provided to you immediately and will assist you in keeping track of all accounts placed with your agency. More importantly, such reports ensure that your agency has properly logged your accounts. You should request that a sample report be provided to you prior to placement of accounts.

Make sure that your agency provides you with account status reports denoting what stage of collection your accounts are in e.g. active, skip tracing, partial payment arrangement, settled in full, paid in full, bankruptcy, litigation recommended, etc. These reports should be sent to you on at least a quarterly basis. Again, a sample status report should be provided to you.

Automation

A computerized system together with hard copies represents the best method to not only keep track of your accounts, but to also work the accounts. Make certain that your agency utilizes such a system. Moreover, a well designed automated collection system will ensure that your accounts are properly logged and maintained. Ask for the name of the software used by your agency and the name of its manufacturer.

A consistently overlooked area in selecting an agency is whether it has adequate levels of insurance in case the account is mishandled. A growing trend in the area of debt collection is litigation against collectors for failure to abide by the mandate of the Federal Fair Debt Collection Practices Act. An offshoot of this type of litigation is the issue of whether the creditor can be held secondarily liable for the practices of its collection agent. Maintaining proper levels of insurance will certainly prove useful should litigation ensue.

Be aware of lowball fee agencies. Lowball fee schedules are usually bait and switch tactics designed to attract new business. Request that a collection services agreement be drawn up to protect this potential abuse from occurring. Keep in mind that low rates very often signify inferior service and that "you really do get what you pay for".

Your agency should be able to deliver your money to you no later than thirty days (30) after receiving it from the debtor. If your agency holds onto your money for a longer period of time, you should request and receive an explanation as to why your payments were delayed.

For each payment that you receive from your agency, a statement detailing the amounts making up the payment should be included. For instance, if money was collected from Debtor Dave, the statement should, at a minimum, indicate when the payment was received, how much was the payment, the commission fee rate for the agency (in the form of a percentage and in actual dollars) and, of course, your share of the recovery.

ATTORNEY INVOLVEMENT

Your chosen agency should be affiliated with attorneys whose expertise are in creditor rights and commercial litigation. Any legitimate collection agency will be affiliated with the Commercial Law League of America (CLLA) and the National Association of Retail Collection Attorneys (NARCA). Be certain that your agency has this type of affiliation; inquire as to the criteria necessary before referring the case to counsel and insist that your agency seek your permission prior to such referral. Finally, in most cases, if litigation is utilized, be aware that you will now be responsible for court costs and that your agency's commission fee will be increased.

One of the biggest complaints we hear from new clients is that their old agencies were never accessible to provide up to the minute reports as to the status of their accounts. You should be able to, at the least, telephone your agency and receive information regarding your account from the collector assigned to it. Voice mail "run around" systems are clearly unacceptable.

Any reputable and professional collection agency should be able to supply you with ample creditor references. You should not hesitate in asking for them and likewise following up with phone calls to determine the success rate of your agency. If possible, request written letters of recommendation. Remember, this is the collection agency that you are entrusting with the responsibility of recovering your assets. No amount of research is too much.

A final point almost always overlooked when selecting an agency is checking that its collectors treat the debtor with absolute professionalism. Despite the fact that the debtor owes you money, there is nothing more important than communicating with the debtor in a professional manner. Remember that the collector is your duly authorized agent and as such his actions reflect upon you. More importantly, his actions regarding all communications with the debtor are regulated under numerous federal and state laws.

The decision on which collection agency you should entrust with your accounts receivable should not be taken lightly. It requires thorough research and investigation. My experience demonstrates that there is absolutely no substitute for the right teamwork between creditor and agency. The synergy generated by this teamwork will transform your debts into dollars.