In House Collection Agencies By Martha Logan Written for Sales & Marketing Magic

Most multi-family management companies have historically sent bad debt accounts to outside collection agencies.  This practice, standard in our industry for many years has usually been done without questioning how much income is being lost.  The problem with this practice is most collection agencies are looking for the large accounts in dollars and or volume, which prove the most lucrative to their business.  The smaller accounts those multifamily operators send is usually viewed as less lucrative and are worked as free time is available.

Some companies have on site employees act as their collection agency.  These employees have good intentions but with other demands on their time, often the collection efforts never take place.  Again, income to the company is lost

Due to poor results from both these efforts some multifamily operators have set up in house collections “agencies”.  These in house departments can and are producing very favorable results.   It is not uncommon to see income from collection efforts to increase as much as 100% over what had been collected.  The main reason for such a high increase is that first the collection agency is not taking a percentage, which typically is 50% and the in house employees working the accounts are only focused on collections.

Setting up an in house collection agency for your company is fairly simple.

First seek legal advice, regarding laws in the states where your company operates to determine if special licenses are required.  In most states, employees of the company can act in a collection role as long as they are collecting for their employer’s account.  Set up policies and procedures that will be followed and audited using the advice of the company’s legal department and or attorney.

Determine how many people will be needed to get started.  A fairly organized employee with a good work ethic and the ability to talk with the former residents in firm but professional manner should be able to collect approximately $25,000 to $30,000 per month.   Consider putting the employee on an incentive plan to motivate them to be very proactive in bringing in revenue.

To determine if this will be profitable for the company first look at your company’s total bad debt.  In addition, estimate how much is being charged for damages and or termination fees at move out.   If you are using an outside collection firm look at the percentage being collected of the total amount which is sent the agency.  Again, in house agencies will do considerably better in total collections with no splits are taken.  After looking at the projected income from an in-house effort estimate the expense of the new department which will include payroll, legal fees, collection software, space to house the department, office supplies, etc.   If the income and expense projections result in a benefit to the company take the next step and get started setting up an in house agency.

First hire the collection team, after careful consideration to the requirements and responsibility of the job.  Then set up a computer or computers loaded with collection software and a license to access credit-reporting agencies.  Most collection software is easy to use and can be bought off the shelf.  Set up a good filing system for the accounts.  For old accounts consider outsourcing these as older accounts usually take more time to produce results. Have access to an attorney in the states where you are collecting so the employee can get quick answers to questions as they arise.   Also an attorney can best handle garnishments, liens, judgments and any other process that is more involved and may require appearing in court.

The process once set up is simple.  Have resident’s files with outstanding balances sent to the in house agent immediately after move-out.  First report the information to the credit-reporting agency so it is on the record of the former residents. Set up the account in the database that has designed to track the accounts. Mail a letter letting the former resident know the account has been sent to the credit reporting agency, attach the statement of deposit that should have been already mailed, then follow up with a phone call. If no results are achieved follow up with a stronger letter and another phone call. Continue this process for the next sixty to ninety days.  The collector must have the authority to work out payment plans and settle, as they find necessary when talking with the former resident. 

Shortly after the in house system is set up and operating, collection income will be generated.  Money once lost to the company will now become real income.

Martha Logan, CPM
Martha Logan and Associates, Inc.
mjlogan@mediaone.net

Martha Logan is founder and President of Martha Logan and Associates, Inc. a management and marketing consulting firm serving the multifamily housing industry in the United States. The firm focuses on improving operations and cash flows at rental apartment properties.

Prior to founding Martha Logan and Associates, Ms. Logan served as Executive Vice-President (EVP) of Post Properties for 10 years. Post is one of largest publicly traded apartment real estate investment trusts (REIT) in the U.S., with a total portfolio exceeding 30,000 units. The firm’s shares are traded on the New York Stock Exchange. At Post, Ms. Logan was initially responsible for management of the 2,000 unit fee management portfolio of Residential Asset Management (RAM), a wholly owned subsidiary of Post. RAM’s units under management grew to 9,000 during Ms. Logan’s tenure. She was promoted to EVP of the parent company, responsible for management of Post branded properties. Her portfolio grew from approximately 13,000 to over 20,000 units while she was EVP.  She was also responsible for corporate travel, corporate housing, branding programs and Internet marketing.

Prior to joining Post, Ms. Logan was affiliated with various private and publicly traded apartment development, management and syndication companies. Active in the multifamily industry since 1974, her career includes stints as a leasing agent, assistant manager, marketing director, on-site manager, area manager, and regional vice-president.

Ms. Logan is known in the multifamily industry as an innovator and as a successful implementer of new ideas. She holds the Certified Property Manager (CPM) designation granted by the Institute of Real Estate Management (IREM) and is a licensed real estate agent. She resides in Atlanta with her husband and two sons.

To read more articles from this author please visit www.smmonline.com. The Sales & Marketing Magic Companies, shares more than 20 years of experience in multifamily housing, encompassing leasing, marketing, management, training, authoring, consulting, developing, and Brainstorming! For more information on Sales & Marketing Magic for Apartment Managers; the latest Tools & Forms Catalogue; The Annual Multifamily Housing Brainstorming Sessions™; or to receive top ideas, FREE, via e-mail, please call 727-784-9469 or visit www.SMMOnline.com.