For many recovery mangers, it is an issue of time, not inclination. Certainly we all want to do the job to the best of our ability. The demands of the recovery professional can be great and far reaching. Time to manage agencies is sometimes at the bottom of a lengthy To Do list. And, if we were able to accomplish just about everything on our To Do list, some well meaning boss would probably think that means we need a bigger list. Soon, we begin to realize that we have only so much time, and we'll need to adjust our management of the agency relationship based on that fact.

Another issue that leads to the dozen common mistakes is short-term thinking. Managers are often rated on short-term results and have no encouragement to foster long-term results from agencies. Time constraints and a short-term attitude combine and lead the recovery manager to the dozen common mistakes.

Exactly how does a recovery professional, intent on doing the best job possible, begin this complex task? Studying available literature, visiting agencies, talking to peers is all good. Many people have an opinion on how to manage agencies. It is difficult to know, however, who collects the most by managing effectively. This is very difficult to compare, since many factors affect the relationships.

One way to look at how to manage effectively is to look at what not to do. Common mistakes of other credit professionals can help establish a basis of understanding for better management.

The dozen common mistakes detailed below fall into key areas of:

• Choosing an agency and placing accounts,
• Commissions,
• Managing & motivating,
• Measuring agencies

They are not listed in order of importance, since some might be more or less important depending on the client, the agency and the specific relationship.

A Dozen Common Mistakes:

Choosing An Agency & Placing Accounts

• Letting Rate Be The Deciding Factor.
• Not Providing All Information & Tools To The Agency.
• Inconsistent Placements.
• Not Comparable Placements.

Commissions

• Quibbling Over Whether The Agency "Earned" Commission On A Specific Account.
• Not Reporting Direct Payments.

Managing & Motivating

• Not Maintaining A Presence (On-Site Audits & Statistical Rankings).
• No Debtor Verification or Checking.
• Motivation By Intimidation.

Measurement

• Using Agency Generated Statistics.
• Comparing Outdated Historical Averages Or Industry Trends Without An Understanding Of What Makes Up That Number.
• Not Measuring According To The Placement Date Of The Account.

Choosing an agency and placing accounts is just not as simple as some people might like it to be. Certainly, some credit managers will use gut feel and make a decision without all the facts while others will spend more time analyzing the situation than it may be worth. A happy medium is suggested. Steer clear of the agencies that offer a lower rate than the competitors. Low rates, without an accompanying special project or reason, may just be low service.

In this category, another common mistake is not providing all the available information to the agency. For example, a large bank places accounts in a tape? to? tape format. The bank knows which accounts are mail return accounts, because it has already identified them. However, the bank does not flag the return mail accounts for the agency. By flagging the return mail accounts, the agency could begin an immediate skip tracing effort rather than wait for the return mail. Other information, known to the client, might be just as useful if shared with the agency.

Inconsistent placements are probably not noticed as much by the credit grantor as the agency who has to deal with the issues of staffing and prioritizing accounts. When a credit manager places large volumes of work in a sporadic method, the agency is usually less effective than when the manager places work regularly and consistently. With regular placements, both the client and the agency can plan and staff appropriately. Without regular placements, good collectors are underutilized and later overworked, not resulting in the best of situations.

Maintaining comparable placements is also not as easy as it seems. Placements are often sent based not on keeping the measurement methods fair, but on who will do the best job. Sometimes this means that the best agency will unknowingly be at a disadvantage when new work is placed. Many times credit managers have given work to an agency because they know they are excellent with large accounts that will need suit. This same agency may get all the skip accounts because they are good at it, too. Or, because the agency is in Texas, they might get the Texas accounts. The difficultly arises when the manager attempts to fairly evaluate the results. Generally, people consider their placements fairly consistent. However, many good agencies have been the unknowing victim of their own excellent results. One manager said "Whenever the debtor is really bad, or makes me mad, I give the account to ______, because I know if someone is going to collect it, they will."

Commissions are an issue with many. At times, a client will quibble over whether the agency actually did enough work on the account to earn a commission. Clients sometimes don't compare the "easy" collection with the number of difficult and complex matters that the collector worked on that couldn't or didn't result in fee.

Along this line, many clients do not have a set program for reporting payments which are made directly to them. This results in the agency having to call the client for payment information, and in fact collect the account twice, once from the debtor, and once from the client. Reporting payments on a consistent basis will avoid those end-of-month calls asking to check specific accounts and could also enhance the agency client relationship.

Managing and Motivating is also an important area. Mistakes are made when managers are too busy to work closely with their agencies. On-site visits should be conducted and audits or operational reviews will help both the agency and the client understand the progress towards mutually agreed upon expectations. If on-site visits are not possible, the credit professional can maintain a presence by monthly publication of statistics regarding the agencies and phone conversations.

Occasionally, debtor payments can be checked. Internal auditors may suggest that the debtor payments be checked with a random debtor verification letter. Often, when second placement agencies are used, the client will soon find out if the debtor paid the first agency. It doesn't take long to find out if payments were made and not reported if the account goes to a second agency.

Sometimes credit managers prefer an agency relationship that is based on intimidation. This is really an old style mistake. Today's credit professionals are working not by intimidation but by establishing a long term partnership with the agency.

Measurement of agency performance has, in the past, been difficult. Often, without internally generated numbers, credit managers had to rely on agency-generated statistics. There are some inherent problems in this. For one, agencies tend to report their information differently. Some agencies will take bankrupt accounts out of the numbers, some don't. Some take disputed accounts out of the numbers, some don't. Credit professionals never quite know what is in or out of the numbers unless they can generate their own.

Historical averages and industry trends are also difficult measures to use when looking at your agency's performance. Too many changes have taken place recently to believe that historical numbers will be useful for long. Also, industry averages suffer because clients within industries do not operate the same, or place accounts the same, or measure agencies the same. There are too many variables inherent in these numbers to make them a viable tool.

Another fallacy in measurement is not comparing the recovery from the year and month it was placed to the year and month the payments were made.

When remittance checks for today are compared with the placements for this month, agencies and clients fool themselves with a false sense of security and measurement. To increase recoveries, just reduce the placements for the month. If your usual placement is about $100,000 per month with collections of $10,000 per month, try placing only $50,000 for May and you'll probably still have recoveries close to $10,000 on May's check. That way, you increase recoveries from 10% to 20% overnight. Batch tracking measurements to date of placement is the only way a credit professional can determine results with any degree of accuracy. (Of course, this assumes the fair and comparable placements discussed earlier.)

A dozen common mistakes were highlighted so that they might be avoided. By learning from others mistakes, we can work toward a better agency management program and relationship. Taking time to review the mistakes and plan your own agency management program means work. There are certainly other items that can pop up in place of this process. Without a strategic long term plan clients will continue to make some of the basic mistakes listed above. And, agencies will continue to collect money. But maximizing performance from agencies and achieving the highest recovery means moving past the traditional "collect it" and toward a strategic plan of agency management.