Basics of Writing a Good RFP for Debt Collection Agencies

Selecting a third-party debt collection agency can be as simple as getting a referral from a trusted source, contacting the company, negotiating a rate and submitting your first claim.

To find the best fit for their specific needs, however, many companies prefer to contact several agencies to compare their capabilities. The best way to do this is by issuing an RFI or RFP to a number of prospective suppliers.

RFI vs. RFP: What's the difference?
The RFI (Request for Information) is just that, a general request for information from prospective suppliers. It's designed by the buyer to determine which firms to consider going forward in the selection process. It is usually part of the planning stage, when the buyer may not yet be able to identify their specific collection requirements. An RFI may be issued as a stand-alone or act as a precursor to the RFP.

The RFP (Request for Proposal) is a document used to elicit bids for a specific product or service. If an RFI wasn't issued first, the RFP may also be used to gather information on the potential vendor -- either through a series of questions or via a general outline of topics to be covered.

As a commercial collection firm, ABC-Amega has seen quite a number of RFPs. Some of them are well prepared, but many are not.

As the saying goes: "garbage in, garbage out." If your RFP is incomplete, poorly structured or doesn't seem to fit the type of agency you forward it to, it will generate a lot of questions from the potential suppliers -- and you'll be left with responses that don't meet your needs. In short, it will be a waste of everyone's time.

A detailed and well thought out RFP, on the other hand, will result in high quality responses from the candidate firms. Responses that will go a long way toward helping you make a good selection.

Sample Request for Proposal
Like many things that can seem daunting at first, if you understand the nuts and bolts -- the underlying structure -- it makes it a lot easier to create.

Here's an outline of what we consider a good Request for Debt Collection Proposal. One that will provide you the information you need to select the right collection provider; and one that will help the prospective suppliers fully understand your requirements.

Section 1: Introduction /General Information about Your Company

1. Profile of Your Company -- a few paragraphs about your company: your market, products/services, mission, corporate culture, etc.
2. Reasons for the RFP -- general statement of the reasons you are seeking an outside collection agency.
3. Procurement Policies -- if any (for instance, policy regarding Minority and Woman Owned Businesses (M/WBE) or policies regarding subcontractors).
4. Disclaimer -- a must have. A statement to the effect that the costs for responding to the RFP must be carried by the prospective supplier; that the issuance of the RFP does not obligate your company to enter into a contract with any of the suppliers, etc.

Section 2: Response Requirements

Who, What, When, and Where

It's key that the suppliers solicited to respond to your RFP understand your requirements for completing and submitting their proposal.

Therefore the first section of your RFP should include:

• Who to send the RFP response to (names, titles).
• What format it should be in -- Word, PDF, Excel, or a form provided by you? Using the same numbering system you used in the RFP? (Note: it's easier for you to compare responses if every candidate uses the same format.)
• When the response is due (date, time).
• Where the response should be sent (mail or email addresses).
• How the response is to be sent (mail, email, FTP, online).

Critical Dates

By what date should the supplier:

• Return their Intention to Submit a Proposal? You can provide a form they need to complete and return, or just ask for a return email stating their intention to respond.
• Return the signed Non-Disclosure Agreement? You should include a non-disclosure agreement in your RFP since you will be exchanging proprietary information with vendors about your respective companies that neither of you would care to have disclosed to competitors. (If your company doesn't have such an agreement, the supplier probably has one.)
• Submit their questions regarding the RFP? And to whom? Also include when and how you will provide the responses to their questions.
• Submit their Final Proposal?

Include any other time-related requirements, such as the period for which the fee quotation must be "good".

Selection Process

• What rationale are you using for selection? Is it simply the lowest price, or will there be other considerations?
• What is the anticipated date that finalists will be notified of your decision? Don't forget to notify those that have not been selected. It's a courtesy for the time and effort they put into their response.
• Are there further requirements of finalists? Such as in-person presentations, etc.
• Approximate date of selection.

Section 3: Proposal Contents

Most RFPs include either an outline of the sections required and topics to be included in the proposal or the actual questions to be answered. Occasionally we'll run across an RFP that leaves this issue open, allowing the prospective supplier to provide their general proposal in any order or format. This makes it very hard for you to compare the breadth and quality of services between suppliers. We, therefore, recommend that you be as specific as possible.

Topics you should cover:

1. Supplier's Corporate Information

• Ownership, legal structure.
• Locations.
• Years in business; years collecting for companies in the RFP issuer's industry; name of clients in the issuer's industry.
• Brief bios of key executives, and the primary point of contact should the agency be selected.
• Other services offered,
• Industry credentials and memberships.
• Adherence to law, rules and regulations.
• Licensing and bonding.
• Client References (in your industry, if possible).

The primary arbiter of laws for consumer collection agencies is the federal Fair Debt Collections Practices Act (FDCPA).

Commercial collection agencies are not required to adhere to the FDCPA. The CCAA and CLLA, affiliated private organizations, are the main bodies that govern commercial collection companies. Of the thousands of companies that say they can do commercial collections, only a little over 100 are actually members of the CCAA. Check the current member list on the CCAA website to see if your prospective commercial collection supplier is affiliated and certified.

In addition, many states require that consumer and/or commercial collection agencies be licensed and bonded. For further information on this topic, visit www.cornerstonesupport.com, which is one of a number of services that assist collection agencies in managing licensing requirements.

2. Collection Services

A. General Information

• How many years of experience does the supplier have? How many years collecting in your industry? Ask them to provide some client names within your industry. (Note: with the exception of a few industries, like healthcare, the collection process for all industries is similar. Therefore, experience collecting in your specific industry, while certainly an additional plus point, may or may not really be relevant.)
• What are their results -- recovery percentages (in general, or in your industry)?
• What sets their company apart from others providing similar services?

B. Collection Process

• What is the supplier's collection process? Why does it work?
• Does their collection system automate any aspects of the workflow, i.e. collection desk assignments; handling standards?
• What's the difference between the domestic and international collection processes?
• How does the supplier define and measure success?

C. Collection Staff

• How many collectors does the supplier have? What is their experience level? Education? Retention rate? How many handle domestic collections? How many handle international files? What about small claims? Or claims that need to be submitted to an attorney?
• What are the processes for hiring, training, and monitoring?
• Who handles international collections? What is their experience level? Do they speak foreign languages? Do they understand key issues in foreign commercial law?

D. Quality Control

• Does the supplier have a Quality Assurance program? What is involved?
• How about operational certifications (for instance, ISO)?
• Is the supplier Sarbanes Oxley compliant?

E. Reporting Capabilities

• Is online reporting available? Is it secure?
• What standard reports are available? Request samples.
• Does the supplier have the ability to develop customized reports?
• How are reports provided (by email, download, paper, etc.)?

F. Technology Capabilities

• What are the procedures for submitting and updating accounts placed for collection?
• What IT resources does the supplier have?
• Can the supplier integrate with client systems?

Section 4: Pricing/Collection Fees

Collection agency fees are generally contingent upon collection and represent a percentage of the actual amount collected. Fee structures are often tiered, based on the amount of the placement, the age past due, or whether or not attorney handling is required.

In order to obtain the supplier's best rate, you need to provide some key information on the portfolio you plan to place. Surprisingly, we've seen quite a number of RFPs that include no, or very little, information that would allow the supplier to give a realistic and cost effective quotation.

So, what information does the supplier require? At the least they'll need to know:

1. Are the accounts against individuals (consumers), businesses, organizations, government entities (commercial), or both? Collection agencies generally specialize in either personal (consumer) or business-to-business (commercial) debt collection.

   If you have both, are you willing to split your portfolio between two (consumer and commercial) suppliers, or do you require all collections be performed by a single supplier? In addition, how many suppliers will you be taking on -- just one or multiple?

2. What percent of the portfolio is domestic (U.S.) and what percent international? If there are international accounts, in what countries are the debtors located?
3. What is the approximate total dollar value of the monthly/annual portfolio that will be placed? What is the average dollar value of an individual account? How many accounts will be placed?
4. What is the average age past due of the accounts?

In addition, it would be helpful to know:

1. What types of receivables make up the portfolio? Unsecured/open accounts? Secured, (letters of credit, UCC , etc.) accounts?
2. How much and what type of collection activity is made in-house, prior to placing with a collection agency? Are the accounts written off prior to placement?
3. What kind of documentation can you provide? Credit reports? Signed credit applications? Copies of Personal Guarantees? Contracts?
4. o you require special handling? For instance, the agency has just 90 days to collect or send the account back, or a specific number of calls must be made at specified intervals?
5. What type of reporting will you require, and the periodicity of the reporting?

Online RFP Services

More and more companies are opting to use Internet proposal/RFP services. These organizations provide online tools to manage your RFPs, supplier questions, and the responses. They often also include a competitive e-bidding process. While they can certainly help you streamline and manage the RFP process, the competitive e-bidding component is not suitable for debt collection services.

Why? First of all, the tools that we've encountered are set up for a "price per piece" type bid, not a tiered structure that is the usual pricing format in debt collection. Secondly, while the adrenalin of the competition can result in your company getting a great, low rate, once the thrill of the competition is over, what corners will the agency have to cut to keep themselves in the black?

RFPs are a great tool to help you compare the quality and capabilities of various debt collection providers. It's essential, though, that the RFP be specific and complete -- providing the industry-specific information you will need to make a selection, as well as requirements and data required to help the suppliers prepare responses that are easily comparable and can provide realistic and competitive fee quotations.