The due diligence required to hire a collection agency can be exhaustive. Site visits, reference checks, policy and procedure reviews, cyber reviews, testing and more – and that’s not even counting the contracting phase. The last thing anyone wants to think about is termination preparations! But, the time to think about termination is at due diligence and contracting. Most creditors include a termination clause in their contracts with agencies. Most make a lot of sense at the time of contracting. However, at the point in time when termination seems imminent, the contract clause doesn’t often seem to cover the necessary fine details.
Of course, if the agency is found to be guilty of fraud, compliance violations or ethical breaches, the decision to terminate is relatively easy. Your conscience is clear, you did the right thing, and the break is clean. Get all the accounts back now.
But, when you are considering termination for “performance” reasons, it gets more complicated. You’ll want to be sure you compared results fairly, and gave the agency or attorney or outsource vendor an appropriate opportunity to make any corrections or step up to the plate. Although most people do not want to terminate a relationship, and it’s not usually done without detailed effort to avoid, making sure you appropriately communicated and provided opportunity for remediation is extremely important.
Consider whether the impact of your termination is a factor to you. For example, if your company places a large volume of business, and the agency will need to lay off collectors, or close an office, will you adjust your termination schedule, or work with the agency any differently?
Many times, the termination section of the contract, which looked great when you originally designed it, now looks vague or incomplete as you begin to implement the procedures.
Sweat the Details With a Solid Plan
It is generally easy to stop ongoing placements to a vendor, but the more difficult decisions involve what to do with the existing inventory currently at the vendor. Determine whether you will require it to be returned, or whether certain types of accounts will be left. Set up a policy for:
- “In Process” Accounts – these are accounts that have already been worked to some significant degree, the debtor has been located or even contacted. Promises are made, even if money isn’t in-house yet.
- “Legal” Accounts – accounts that have gone to legal status (a suit has been filed or a judgment entered) are often best left with the attorney of record. Substitution of attorney can be time consuming, costly and prejudicial to the final judgment. (Some attorneys and their contracts may have an attorney’s lien on these accounts.)
- “PPA” Accounts – payment plan accounts, characterized by the receipt of a down payment and regular installment payments. It is possible the balance, may be jeopardized if removed from the originating agency. The delicate relationship between a collector and his payment plan debtor is easily disturbed. What’s worse, once coded as payment arrangement, some of these accounts stay at the agency for years, whether the debtor continues to pay or not.
- Liquidation Audit – a major consideration to leaving accounts behind rather than taking them all back is that it will still be important to manage that liquidation portfolio and this is a continuing investment in time and resources. A liquidation audit might emphasize a reconciliation of accounts, a review of payment arrangements in process and a review of legal accounts in process. It should be performed as soon as possible after an agency is notified of your intention to terminate.
Termination Troubles
Terminating agencies has not always gone smooth for all creditors. One major bank creditor, after enacting the contract’s termination clause and informing the agency that the relationship was officially severed, was told by the owner of the agency that none of the accounts were being returned as they belonged to the agency!
A credit card issuer terminated an agency only to learn, many months later, that, using account information they had stored in their archives, the agency reopened accounts and actually collected money. To add insult to injury, not only were none of the collections turned over to the creditor, but some questionable collection techniques led to major public relation problems for the creditor.
One large retail credit bemoans his experience with two attorney firms. The attorneys refused to return accounts because they claimed that they had put work into them and, in fact, had “attorney liens.” They felt their previous efforts might result in payments in several years. The relationship became very adversarial at this point making all attempts to retrieve the accounts very difficult.
Still another client was told by agency management that the policy was to pay non-continuing clients of multiple accounts last—only after the continuing clients were paid. The client told him he appreciated his candor; now he knew he was dealing with an “honest” cheat.
Of course, termination troubles have not always been the result of the vendors themselves. No one begins a vendor relationship wanting to terminate the agreement, and no one entering a relationship wants to be terminated, but one creditor found out that letting their temper make the decision was not a good idea. This creditor terminated a relationship without appropriate professionalism and found it very difficult and costly later when they needed the vendor to provide substitutions and additional information.
Conclusion
It is a time-consuming and complex process to change vendors. But, that should not stop you from doing so when appropriate. With compliance issues or fraud issues, the decision to terminate is easier, and quicker. Termination for performance can present more challenges. A well-prepared termination process is essential.
Setting ground rules for termination before encountering performance issues makes it easier to determine when remediation opportunities have expired, and termination is the appropriate next step. Once the decision is made, review your termination policies and procedures and ensure you’re ready for the recall process. It is important to remember that the agency is still your partner until the last account is recalled and all account data is purged from the agency’s system. Professionalism in the process is important, and more likely to result in a smooth transition. Oversight continues to be the creditor’s responsibility. Being prepared for termination with a well thought-out process and procedure is crucial—it’s not an afterthought.
Author: Judy Hammond
Judy.Hammond@ResourceManagement.com
Judy Hammond is founder and President of Resource Management Services, Inc. The corporation was
founded in 1986 and specializes in auditing and consulting, serving the collection and recovery
industry. As President of Resource Management Services, Inc., she has more than 35 years of
experience with an emphasis on operational reviews for compliance and operational effectiveness of
collection operations, both for creditors’ internal collection and recovery operations as well as
collection agencies and attorneys. She has worked with top banks and financial institutions, utilities, credit unions and telcoms, (and their vendors) and has conducted many Best Practices projects. She is author of various industry publications: “Comprehensive Agency/Attorney Usage Study,” “Comprehensive Agency/ Attorney Usage Study II” and “Collect More From Collection Agencies”. Her work with creditors who were looking to sell debt for the first time, and subsequent Buyer/Seller research was the foundation for the second corporation, The Debt Marketplace, Inc. She worked with Dennis Hammond as co-founders of the Debt Buyers’ Association, (now RMAi), building the
foundations for industry standards, as well as the original code of ethics. She developed and
produced two industry conferences, Collection and Recovery Solutions and Debt Connection Symposium & Expo, from their inception in 2002 and 2006, respectively, to 2022. Prior to starting her own company, she worked with two large collection agencies.
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