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Choosing an agency based upon the
lowest fee charged may not be the best choice. While price is
a factor in making any business decision, it should not be the
primary determining factor, especially where qualitative variables
need to be assessed.
Most of us are familiar with the old
adage "You get what you pay for." Low
collection rates often result in an agency rolling back operations
and efforts. An agency is a business and as such needs to earn
a fair rate of return. Lower prices or fees almost always mean
that the agency will cut back on it's collection efforts to reduce
expenses.
A creditor should focus on two terms
-- one called "net back"
and one called "yield."
Simply stated, netback means the amount of
money returned to the company from accounts placed for collection as
a percentage of the amount placed. An agency with a
higher netback collects more accounts and returns more dollars to
the creditor. Yield means "skill
and resources" demonstrated by a higher percentage of
collectability -- more dollars collected from the placements.
Often agencies that specialize in
letter series or charge low collection fees does not produce high
netback. This example shows how important netback and yield is
in making the better business decision:
| Function |
Agency
X |
Agency
C |
| Amount Placed |
$100,000 |
$100,000 |
| Amount Collected |
$
20,000 |
$
60,000 |
| Collection Fees |
$
3,000 |
$
12,000 |
| Net
Back |
$
17,000 |
$
48,000 |
| Yield |
20% |
60% |
In this example Agency C returned
significantly more to the creditor than Agency X, although it had a
higher collection fee rate.
It is important in selecting an
agency that you look beyond the fees they are charging and
understand the resources that will be applied to collect your
accounts.
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