Hiring any collection agency can, unfortunately, be tricky. However hiring an HOA collection agency, where your own neighbors are the ones you’re collecting on, can be a real high wire act. While many collection agencies should be avoided (we’ll cover what to look for), there are some professional national firms who you can trust with your community relations.
What to Avoid
First off, let’s start with what should be avoided and why. Most ‘contingency’ collection agencies really work on a commission-like mentality. They put the agency’s collectors on a heavily-weighted bonus structure, where their income primarily depends on the ability to squeeze money out of debtors. When the basis of your business model is to put your people under such instant pressure – which never goes away – it’s no wonder that pressure is transferred to the person from whom they’re trying to collect. Get it?
But Wait – There's More
Next, contingency agencies use scoring software from firms like Experian and Intelitech Group. This software’s job is to determine the most profitable accounts for the contingency agency to pursue (a process they call "segmentation"). They then focus on those accounts and ignore the rest. Turns out (by their own admission) on average typically only about 30% of accounts submitted to a contingency agency ever get worked. And within that 30%, some accounts are only thrown a single postage stamp’s worth of effort… while a few are chewed on like a bone thrown among wolves – with the rest of that 30% falling somewhere in between. That’s why many entities who use contingency collection agencies only report a 2% to 4% net recovery rate. Sad, isn’t it.
The Ugly Truth
You see, the whole contingency model is based on getting accounts in, taking the cream - the most profitable accounts - off the top and discarding the rest… then going out and getting more accounts to cream. That’s it. And for doing that, you lose 25% to 40% of what does get collected just to pay them. It’s a great deal – just not for you.
Now for The Good News
Now let’s discuss some differences that make all the difference. There are a few agencies who ensure every balance submitted is equally serviced, prove it with detailed reporting, pay their collection counselors on salary only, have delinquent homeowners pay you or your management firm directly, ensure your association gets 100% of the collected dues, and do so at no cost to your community association board. Such agencies are so confident in their process and its high rate of success that they only get paid a low flat fee, which is covered by the homeowners who are late on their dues. And when there’s no collection, there’s no fee paid. Only entrust your neighbors to an agency whose profile fits these qualifications.
Look for a national firm, licensed and able to serve in all states, with an experienced track record of success in the homeowners, property owners, and condominium owners associations field. One who uses all the proper tools to motivate property owners to come back to the table and get current, and does so in a manner which maintains your valuable community relations.
Where the Rubber Meets the Road
And remember: when homeowners and property owners are always instructed to pay your association or management firm directly – that says a lot about the caliber of firm you select.
Click here for more details and insights into this caliber of collection process.