When a credit manager trying to collect on delinquent accounts has struck out more often than the Cleveland Indians, it may be time to call in a commercial collection agency. Collection agencies, especially during economic downturns, can be an effective way to speed up receivables, provided a company is careful about which agency to use and when to use it.
Those that are willing to make personal visits to delinquent customers should be high on the list of candidates. "We don't want someone who can write letters and telephone," says Evelyn Hesketh, credit manager at H.W. Baker Linen Co., in Mahwah, N.J. "We've already been doing that right along, with no success." Hesketh turns over about 100 accounts every year to Stanley Tulchin Associates Inc., of Garden City, N.Y., and says the agency "has an excellent record. Some are 100% collected. You need someone who knows the law and has the experience to deal with tough clients." Stanley Tulchin, like most agencies, charges clients on a contingency basis, averaging about 25% of the amount collected.
Also, credit managers should look for agencies that belong to the Commercial Collection Agency Section of the Commercial Law League of America, which establishes minimum guidelines concerning operations and ethics, and requires bonding of all members.
From the agency's point of view, timing is important in its relationship with companies that hire it. "We're not miracle workers," says Russell Farnham, a consultant with the commercial collection agency of Bruhnke & Silver, headquartered in New York City. "If an account is six to nine months past due, there is a real deterioration in the probability of collecting that receivable. We like customers to call us earlier rather than later, somewhere from 90 to 120 days past due." Even if a company can't afford to hire a full-time professional credit manager, Farnham says, it should at least have someone on staff who can read the signals from slow-paying accounts, and know when it is time to call in outside help.
Lawyers are an alternative to collection agencies, except that they can be more expensive (unless you have an inhouse attorney) and often not as effective. "Letters from a lawyer," says one credit manager, "don't have as much clout with people as they used to."