Property managers and collection agencies go together like peanut butter and jelly. Consistent, predictable cash flow is the lifeblood of a thriving residential or commercial property. Partnering with a successful collection agency is the key.
Hiring a collection agency is not a light decision. It can’t be. Cash flow is too important to hire a collection agency that isn’t right for you and your business.
Plus, collection agencies often come up in the news as using illegal tactics. This can damage the relationship with your tenants beyond repair, as well as your brand image.
We know how important that hiring the right collection agency is for you and your business, so we used our years of experience to come up with the ten questions you MUST ask your collection agency before hiring.
1. How much experience does the collection agency have in property management?
Past experience is the best way to gauge how successful a collection agency will be with your company. But not just any experience is good experience.
Collections from tenants, whether residential or commercial, can be extremely delicate. Ensure that the collection agency has had experience with property managers similar to you.
If a collection agency has been successful collecting for B2B businesses, this success is not indicative of how successful they’ll be when collecting from residential tenants. Different companies require different methods of collecting.
So when a collection agency says they have “X years of experience,” dig a bit deeper. Understand WHAT experience they’ve had. This is arguably the most important factor in the success of your collection agency.
2. What is the agency’s recovery rate in tenant’s debt collections?
If you’re looking for a collection agency, make sure that you are working with the top collectors in the game.
The average collection agency only collects about 10% of what’s owed to you. By settling for average, you are leaving thousands of dollars on the table.
Ask the collection agency for their success rates in YOUR industry.
3. What is the procedure of the agency’s debt collection?
Look up “collection agency uses illegal tactics” and you’ll be met with an array of collection horror stories.
These incidences DO happen and they ARE extremely damaging. A property manager who employs one of these agencies can damage their brand beyond repair.
The agency responsible for collecting debts should perform its duties in line with the regulations set by the FDCPA.
Ensure the collection agency will be completely transparent about their methods throughout the entire process. Michael Burns, accounting manager at WeShield, explains that when working with a collection agency, “communication and honesty are everything.”
4. How do you train your debt collectors?
Collecting debts is not an easy job. If it were, the average collection rate would be much higher than it is.
The collection agency should have trained employees to handle collections responsibly. They should be trained in how to negotiate, listen to, and work with the former tenant.
An ideal collector would be informed of all basic laws and regulations regarding the collection of debt.
5. What fees charged for collecting past due tenant debts?
When dealing with late collections, different collection agencies handle late fees differently. Some charge a fixed fee, while others cut a percentage of the amount.
The property owner as well as current tenants must be made aware and agree with the fees set by the collection agency.
6. How will tenants be treated?
The bond between a property manager and his tenants is the most crucial part of a successful property. The collection agency plays an extremely important role in maintaining this bond. By treating former tenants poorly, current tenants will become uneasy.
Aggressive collection agencies can be negligent about this delicate relationship, even going as far as using illegal tactics and threats.
A great collection agency understands that in order to be most successful in their collections, they must handle their collections in an ethical and respectful manner that the tenant will actually appreciate.
7. What states are you licensed in?
The collection agency should be licensed in the state your tenants currently reside in.
What would happen if the agency collects the debt from a state where it is not licensed? This can be a major legal problem that you do not want to face.
8. As a client, what will be expected of me?
The debt collection agency requires basic information about property owners as their clients. Ask them about the contracts and other paperwork that they want to be done.
Collection agencies that do their due diligence before taking action will ask for a brief history of transactions between you and your tenants.
In our experience, we’ve seen property managers choose the wrong collection agency and suffer the consequences for years.
We’ve also seen property managers choose the right ones and establish thriving businesses.
These questions will give you the clarity to decide whether a collection agency will bring you trouble or completely relieve the burden of A/R.