When to outsource debt collection
When does a collections agency make sense?
At market entry, a lender may not yet have a collections department. It may not make financial sense to build one before there are enough cases to justify the staff and the calls. If a collections agency is available, discuss the call scripts with them and arrange for someone to be allocated to the lender. The agency may already have some numbers, prepared scripts and a strategy for when to call each type of borrower.
An agency can also help when the lender’s own team cannot get through the whole call list. This can happen when staffing is short or when collections volumes spike. If the agency’s recovery is similar, assigning cases to it can make sense. Not calling borrowers can do more damage than using an agency with a lower recovery rate. Look at bringing in an agency when the team cannot call everyone on its list.
Which overdue accounts should go to an agency first?
Keep accounts from 0 to 30 days past due in-house in most cases. Accounts more than 30 days past due may be suitable for an agency. In payday lending, that point can be 15 days. By then, any damage to the customer experience does not hurt as much.
If a lender has its own collections team but limited capacity, start by sending the oldest accounts to an agency. Older debt is harder to recover. Agencies are often good at skip tracing, and they have more contacts and ways to enrich their contact lists so they can find people whose details are missing.
Agencies can recover more from old debt because collections is their job, and they have the scale and specialization to build strategies around skip tracing and contact enrichment. Their results do not depend on especially good calls. Sometimes they buy portfolios that lenders have been unable to recover much from. Newer contact details and new ways to reach customers can help them collect after contact has been lost.
How are agency collection fees calculated?
Agencies with enough volume are usually paid a percentage of what they recover. Published fee guides put contingency fees at roughly 15% to 50% of the amount recovered. The rate tends to rise as debt ages. One guide lists 25% to 30% for accounts 90 to 180 days past due, 30% to 40% for accounts more than 180 days past due, and around 50% for debt over a year old. Early-stage letter programmes are often priced per account.
One agency publishes rates of 15% on the first EUR 25,000 of principal recovered, 12.5% up to EUR 50,000, 10% up to EUR 100,000 and 8% above that, plus a fixed EUR 95 handling fee.
Phone collections can cost more if the lender asks the agency to set up a dedicated team to follow its call scripts and use a different strategy from the agency’s standard approach. The agency needs different quality assurance and training for that team.
What should you verify before committing to an agency?
Before signing, check whether the agency already works with another lender. Ask which lender, and whether it is a bank or an NBFI. Banks usually have strict requirements.
Search online for complaints. Borrowers who are harassed may complain on Facebook and other sites.
Treat call recordings the agency provides with caution. They are usually polished, so you cannot know what the calls are really like until you try the agency.
Start with a trial period. Choose one segment and run a pilot before going all in. Every agency will tell you how good it is, but listening to calls and seeing the work for yourself may show something different.
How do you compare an agency’s results with your team’s?
Test the collection agency against your own team with a champion-challenger split. Ask someone who is not responsible for collections to assign cases between them. Use a sample large enough to produce a statistically significant result. The test can show how your team is performing and whether it can learn from the agency’s approach. It may also show that your team performs better.
Compare recovery rates and count the agency’s fee against what it recovers. If the agency recovers less than your team, the fee can make the result poor. If the agency’s recovery is high, it can be a good option.
Run the test for at least two months to check the quality of the work. The first 15 days are usually spent figuring things out and aligning. Data comes in, followed by feedback and corrections. The agency’s first month is often a honeymoon phase, when everyone is trying to do their best. The second month gives you a clearer view of what is happening. Wait until the test is complete before signing a long-term contract.
What call oversight and data access should you require?
For non-performing loans (NPLs) more than 90 days past due, let the collection agency do its work. Give it room to handle the accounts as it sees fit, and check the quality of its interactions with customers. Ask for access to call logs and audio files. Regulated lenders are often required to store them, so there should be some way to exchange the records. Listen to a sample of calls and review random conversations as part of quality assurance. Check that collectors are not shouting at customers or treating them badly.
There should be a standard way to exchange data, but be ready for different formats. Collection agencies often work with banks, which can have limited ways to share information and outdated systems. Data may arrive as Excel, TXT or CSV files and be shared over FTP. Collection agencies are used to these old-fashioned methods because they work with banks.
What happens to your name when an agency mistreats borrowers?
Ethical debt collection matters because harassment by a collection agency can damage the lender’s brand. The same risk applies if the agency does anything else negative. When borrowers complain online about collection, they complain about the lender. The collection agency is not the subject of those complaints. At the end of the day, the lender answers to the regulator for the agency’s actions.
Frequently asked questions
Which delinquency cutoff should I use for the first agency assignments?
Keep accounts up to 30 days past due in-house if your team can reach them promptly. In payday lending, consider an earlier handoff, around 15 days past due. If your team is short on capacity, start with the oldest eligible accounts, where recovery tends to be harder and an agency’s contact-finding capabilities may help. Check the effect on customer experience before moving earlier-stage accounts.
How do I decide whether an agency’s fee is worth paying?
Compare net recovery after the agency fee with what your team could recover at its current capacity, including the cost of adding staff if that is a realistic alternative. Published contingency fees range roughly from 15% to 50% of amounts recovered, and rates often rise with debt age. A common mistake is comparing gross recovery alone. Include fixed charges and check the fee schedule for each age band.
How should I split accounts for an agency pilot?
Have someone outside collections randomly assign comparable accounts to your team and the agency. Balance the groups for factors such as days past due and balance, then set the comparison period before the pilot starts. Size the test using your current recovery rate and the smallest improvement worth acting on. A small or uneven sample can make a difference look meaningful when it is not.
When should I expand an agency pilot?
Expand only after the pilot has enough accounts and time for the recovery results to mature. Compare net recovery by delinquency segment, not just the overall average, and include the agency’s fees in the result. If the agency performs better only on older accounts, keep the handoff focused there. Recheck service complaints and call quality before increasing volume.
