Choosing, Using, and Enthusing a Collection Agency, Part 2

In yesterday’s Part 1, we discussed the first two steps involved in collecting fees. Today we continue with the remaining four steps:

3. USING A COLLECTION AGENCY

Most collection agencies view commercial (business) debts as difficult to collect. Unlike consumer (personal) ones, they lose the effectiveness of their major weapon — fear. Businesses who don’t pay their bills promptly are used to receiving demand letters for payment. Some are shrewd, some are sloppy, but more are sophisticated.

It doesn’t take long to get a lot of practice when you stop paying your way.

They don’t respond to threats, particularly when they’re in a series of progressively tough form letters.

Collectors also know that they can’t threaten businesses as easily. That’s because there are federal and state “consumer protection laws” that rarely distinguish between personal and business debts. Every state also requires licenses and monitors the activities of the collectors, so picking the wrong victim can cost them their business. It costs the victim nothing, since the government prosecutors are on the public payroll.

Under the federal Fair Debt Collection Practices Act (15 USC 1692, et seq.) sanctions include return of the funds collected, fines and public disclosure of the wrongdoing. In some cases, these have been vigorously enforced by the Federal Trade Commission, but almost all of the prosecutions were for harassment of individual consumers.

Tenacity is not as restricted under the law. The number of letters allowed is usually not limited. The number of calls may be, but collectors don’t care. Personal visits can even be justified in commercial collections, since they are usually arranged in advance to “discuss” the “account” in a civilized manner, rather than simply to bully the debtor.

More important, employers who use recruiters are usually able to pay the debt, they just don’t want to. In the mind of the collector, this is a major consideration. Be sure to mention that the fee is “collectible.”

4. ENTHUSING A COLLECTION AGENCY

Collection agencies are even more willing to take every case than collection attorneys. But that doesn’t mean they’re excited about it. Their mill just grinds away relentlessly, processing whatever it can. But placement fee collections are oral, contingency fees.

This means two things must be established to make them due:

a. That the employer knew and accepted the fee arrangement (forming an agreement).

b. That you placed the candidate (“delivered the goods”).

If you simply send the agency your invoices and ask it to collect, it won’t. Within a month, you’ll receive a call from the agency asking you to send the signed agreement with the employer. By that time, it’s too late — the collector has already talked to the employer, and has decided that without a signed agreement, there’s no point in pursuing collection. He may even have a convincing statement from a turncoat candidate.

In “Billpayer’s Rights,” Ralph Warner and Stephen Elias told why collectors have a short attention span:

Collection agencies have their own bureaucracy. They operate on a volume basis. At any one time they have thousands of accounts (some of the big ones have tens of thousands). On most of these, they will recover little or nothing . . . Collectors operate by trying to distinguish those accounts where success looks likely from those where it does not, and then going after the former full speed ahead.

Losing a five-figure fee this way can be very disappointing. It can also be easily avoided by taking the time to educate the collection agency on how recruiters operate. You must take the initiative because the owners and managers of these businesses are extremely poor listeners. Like the workers who lose their hearing from the factory noise, collectors lose theirs from the phone. They tune out “why” explanations and only hear “when,” “where” and “how” payment will be made.

Don’t make the mistake of talking to a salesperson or one of the many paper-shufflers and bean-counters in the typical agency. Talk to the owner or manager — a businessperson who can give your “account” the extra attention it needs.

5. THE TYPICAL COLLECTOR

Being a successful collector requires sadism, savagery, suspicion, and a sixth-sense about human nature. Billpayer’s Rights noted:

Most people in most collection agencies are paid to be nasty, brutal, and to hang on to you like a blood-thirsty tick. Occasionally, you find someone with a little human understanding in the business, but don’t count on it. Most collectors work on the theory that if you are harassed often enough, you will get some money up somehow. There are tens of thousands of collection agencies in this country and many of them are very prosperous, so you can see that these tactics work.

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Collectors are paid much like recruiters — a draw against commissions on “cash-in.” As a result, they tend to compromise placement fees if they will be paid immediately. This is the path of least resistance for them, since they can close their books. The employer who wants to stretch out payments is offering little inducement, because the agent still has to keep track of the account, pester the employer, and hope he doesn’t receive a Notice of First Meeting of Creditors in a bankruptcy proceeding. For this reason, you may not hear about offers of partial payment.

Unlike lawyers, collectors are under no enforceable ethical obligation to notify you about settlement negotiations. As we noted at the beginning, the debt has been assigned — legally transferred to the collection agency. You are relegated from being a party to being a witness. This gives the collector the incentive to handle the case, but it takes the control away from you.

To protect yourself, we recommend you write this on the agency’s assignment form:

(name of collection agency) hereby agrees to promptly notify (name of your business) of all offers of settlement, whether acceptable or not, in the account hereby assigned for collection. (Name of your business) understands and agrees that said notification is for its information only, and that the terms of any settlement with the debtor are to be mutually acceptable to (name of collection agency) and (name of your business).

6. FEE ARRANGEMENTS

Although we rebel against the words “employment agency,” the collection industry operates almost exactly the same way as the placement industry.

Contingency fees (25% to 50%) of the amount recovered are typical. You can negotiate a two-step fee with most, since the major expense occurs when the file “goes to legal.” However, our advice is not to negotiate with the agency. You need to give it every inducement to aggressively pursue the collection. Just as successful recruiters “work” the full-fee job orders (and the ones where the clients are most cooperative), successful collectors “cream” the files.

Placement fee cases are legally weak, so don’t overnegotiate yourself into a lower percentage of a fee you haven’t been able to recover yourself. In fact, many of our clients offer a bonus to the collector if the account is small, is collected in full, or is collected within a certain period (usually 90 days). It gets their attention.

Other arrangements out there include fixed-fee retainers, and purchase of vouchers for a computerized series of letters on their letterhead, instructing the employer to contact you. These usually end with the final one being on an attorney’s letterhead. They’re usually not worth the money (around $10 per voucher), since it’s obvious that the account hasn’t been assigned (and therefore isn’t being worked).

Even worse, these time-released letters cause delay. Time is Placement Payment Enemy No. 1. It causes:

a. Candidates to turn their coats, transfer and leave.

b. Hiring authorities to change files, transfer and leave.

c. Employers to merge, consolidate or declare bankruptcy.

If you’ve ever used our offices to collect your well-earned fees, you know that we don’t operate like collection attorneys. That’s why our clients typically get paid fast for the cases we accept. But we won’t accept the ones collection agencies do best.

A responsive collection agency belongs in your arsenal. Don’t let their industry’s reputation stop you. After all, look at how much you do to earn your fees!

More than thirty-five years ago, Jeffrey G. Allen, J.D., C.P.C. turned a decade of recruiting and human resources management into the legal specialty of placement law. Since 1975, Jeff has collected more placement fees, litigated more trade secrets cases, and assisted more placement practitioners than anyone else. From individuals to multinational corporations in every phase of staffing, his name is synonymous with competent legal representation. Jeff holds four certifications in placement and is the author of 24 popular books in the career field, including bestsellers How to Turn an Interview into a Job, The Complete Q&A Job Interview Book and the revolutionary Instant Interviews. As the world?s leading placement lawyer, Jeff?s experience includes: Thirty-five years of law practice specializing in representation of staffing businesses and practitioners; Author of ?The Allen Law?--the only placement information trade secrets law in the United States; Expert witness on employment and placement matters; Recruiter and staffing service office manager; Human resources manager for major employers; Certified Personnel Consultant, Certified Placement Counselor, Certified Employment Specialist and Certified Search Specialist designations; Cofounder of the national Certified Search Specialist program; Special Advisor to the American Employment Association; General Counsel to the California Association of Personnel Consultants (honorary lifetime membership conferred); Founder and Director of the National Placement Law Center; Recipient of the Staffing Industry Lifetime Achievement Award; Advisor to national, regional and state trade associations on legal, ethics and legislative matters; Author of The Placement Strategy Handbook, Placement Management, The National Placement Law Center Fee Collection Guide and The Best of Jeff Allen, published by Search Research Institute exclusively for the staffing industry; and Producer of the EMPLAW Audio Series on employment law matters. Email him at jeff@placementlaw.com.

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