Missed Promises Can Kill Collection Contracts

Collection firms that provide services to financial institutions should avoid over-promising what they can deliver if they want to avoid renegotiation or losing their clients altogether, panelists said yesterday at the Foreword Financial Expo in Chicago.

“At the heart of all [renegotiation] problems are people who want to get business so badly that they start to over-court the prospect by promising things that they can’t do,” said Edward Hansen, partner with the New York office of Morgan, Lewis & Bockius LLP.

“You’ve got to deliver on your solution so that you build a record of trust and people believe in your ability,” added Jim Harvey, partner and co-chair of the outsourcing practice in the Atlanta office of Hunton & Williams.

Despite a lot of discussions about pricing, that is rarely the reason a collection agency–financial institution relationship falls apart or isn’t begun in the first place, Hansen added. “People tend to commoditize something when they don’t understand what it is that they’re trying to buy. That leads to some bad decisions.”

The collection agency or other service provider can charge a higher price if he can deliver more value, Harvey said. Similarly, if the financial services firm wants the third party to perform more services than outlined in the initial agreement, the firm should expect to incur higher fees.

On the other hand, collection agencies and other providers must understand that clients will want to renegotiate long-term deals if cheaper options, such as offshore service providers, become available, Harvey said.

As a result of the growth of offshoring, technology improvements and regulatory changes, “long-term” deals today tend to be no more than five years long, unlike the longer deals that were commonplace only a few years ago, Harvey added.

Harvey also recommended that both the service provider and the financial institution have one person in charge of the relationship, rather than a silo-style, multiple-staff approach.

Harvey suggested that deals between collection firms and other providers to financial institutions be based on business documents – with expectations defined and benchmarked – rather than on complex legal documents, though those will be needed to close any deal.

The Foreword Financial Expo is presented by Pulvermedia Inc.