As with any other service, there are good and bad commercial collection agencies. Beware of any agency that offers you cut rate commissions far below the accepted Commercial Law League rates, offers you kickbacks on commissions, or makes outlandish promises about recovery success.
You should investigate, evaluate and rate the commercial collection agencies that you plan to use just as carefully as you do with customers when you grant credit. Here are some suggestions: Use Commercial Collection Agencies That Specialize In Commercial Collections If you consider a nationally known commercial collection agency or network, ask for references within your industry. Call these references to see how satisfied they are with the agencies success rate, and how quickly they remit the funds collected.
If you consider a local commercial collection agency, in addition to checking references, also ask for financial information and the name of their bonding insurer. Check with the insurer to confirm coverage and claim experience.
Check with other credit professionals in your own industry to see what commercial collection agencies they use. Many commercial collection agencies specialize in a particular industry. This can be an advantage because these agencies usually know the debtors, and are familiar with the industry conditions. Many of these agencies also provide adjustment bureau services, where they will provide space, secretarial services, and perhaps even legal counsel for debtors and creditors to attempt out of court settlements.
Using A Commercial Collections Agency
When you turn an account over for collection, make sure you give the commercial collection agency a complete package. This should include:
A Statement Of All Charges
Copies of purchase orders, invoices, proofs of delivery, contracts, etc.
Photocopies of customer's checks for any partial payments.
Any correspondence sent or received on any of the outstanding items together with any claims of shortages, non-conforming goods, breakage, or returns.
If you have personal or corporate guarantees and/or any security agreements, include copies of these, along with copies of any UCC forms showing the dates filed.
The more back-up detail the agency has, the better it can work for you. If the matter has to go to suit, you would have to provide this information anyway, so you might as well do it at the beginning of the process. If any paperwork is missing, it gives you time to locate it.
Unless there is a good reason for you to become involved (i.e., a return of merchandise or a valid claim which reduces the amount owing, and you issue a credit memo) do not interfere with the process between your customer and the agency. You hired the agency, so let them do their job. Many times a customer will contact you, and try to make a deal so they won't have to pay collection charges or have their reputation tarnished. The customer may also threaten you with a counter-suit because of a product problem or state that if you press the claim, they will never again do business with you. Stand firm, however, if they do threaten suit, let the collection agency and your own legal department know about it.
Before you place a claim with an agency, you should have determined whether you plan to eventually press for suit and judgment if the agency cannot collect amicably. You do not necessarily have to let the agency know of your decision at this stage, but you should have a plan of action in place. Dealing With Agencies & Attorneys: Fundamental Terms And Principles Commercial Collection Agencies Fees The fees charged for the collection of claims may differ from agency to agency. There are also various types of fee arrangements that may be established.
A "commission" is the compensation payable by a creditor and earned by a receiver for services rendered in effecting collection of a commercial claim. It is normally contingent and computed as a percentage of the sum collected.
A "retainer" is a sum of money paid in advance to retain the services of an attorney and should be taken into account in determining the ultimate fee to be charged for services rendered and results obtained.
A "suit fee" is a fee payable to the receiver, in addition to the commission, for legal services rendered by the receiver for you, involving court action concerning the prosecution of a commercial claim. The "suit fee" is intended to apply to the handling of the litigation, including post-judgment proceedings.
Defense of a counterclaim is considered a separate action, generally handled under a separate fee arrangement. The authorization for suit does not necessarily imply the authorization to defend a counterclaim. A specific authorization and fee arrangement should be discussed at the first hint of a counterclaim.
The amount of the suit fee is a matter of contract between the receiver and the creditor, as is the question of whether the suit fee is to be contingent or non-contingent, or partly contingent and partly non-contingent. A suit fee, if earned, is payable in addition to commissions. It belongs exclusively to the receiver unless there is a division of service and responsibility between the receiver and an attorney forwarder. The suit fee agreement preferably should be entered into before suit is commenced, and the fee should be commensurate with the services rendered, the amount involved, and the results accomplished.
"Court costs" include, but are not limited to: sums required to be deposited for filing an action, fees paid for the service of process and witness fees. You as the client, should first approve other out-of-pocket costs before they are expended. Unless otherwise agreed by you, telephone calls, skip-tracing investigation, postage and expenses for the duplication of material are considered normal office operating expenses absorbed by the receiving attorney. At no time should a receiving attorney incur unusual out-of-pocket expenses without the creditor's approval.
Claims
Agencies deal with the collection or settlement of claims asserted by one individual or business entity against another. There are two types of claims. A "commercial claim" is an obligation incurred during the course of conducting a business which arises from goods sold or leased, services rendered, or monies loaned for use in the conduct of a business or profession. A "retail" or "consumer claim" is an obligation incurred primarily for a personal, family or household purpose.
Not all commercial accounts are based on open account balances; some claims may be based on lease agreements, security agreements, consignment transactions, guarantees or on almost limitless variations of similar business transactions. It is necessary that the agency be familiar with the available legal means of effecting collection of such specialized types of claims. This requires specialized knowledge of creditors' rights with respect to perfecting a lien, enforcing a security interest, as well as effecting collection.
Forwarders/Receivers
A "forwarder" is the agent of the creditor who refers claims to attorneys for collection. A forwarder may be an attorney, a commercial collection agency, or a credit insurance company that acts on behalf of the creditor in the referral of claims for collection. The attorney who receives the claim is a "receiver."
Claims emanating from a forwarder are usually forwarded to an attorney because the debtor is outside of the forwarder's jurisdiction and the forwarder has been unable to obtain payment. Forwarding is approved by the prior express authorization of the creditor-client for whom the forwarder serves as agent. Thereafter, you, the creditor becomes the client of the attorney. The forwarder, however, continues as agent, to facilitate the handling of the claim between the receiving attorney and the creditor. Because forwarders have certain expertise and are relied upon by the creditors, it is the usual practice that all correspondence and contact by the attorney with the creditor be through the forwarder.
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