Collections and loss mitigation vendor management is not easy. Finding and onboarding a new tech vendor or collection agency partner is tough work, so of course, collections & recovery vendor managers want to manage those vendor relationships for the long run. But it doesn’t always turn out that way. If you have solid vendor management practices in place to measure performance and you know which leading indicators and KPIs to watch, you should have a good view into your vendor's performance. Maybe you're seeing that a partner just isn't measuring up on those key vendor oversight metrics or expectations. Maybe they aren't delivering on contractual obligations or responding quickly to your requests.
When vendor relationships do not work out, vendor managers have to decide if and how they plan to terminate the contract and end the relationship. Don't wait to think this through until it's time to end a relationship. Vendor managers who put in the preparation from the very beginning of the contractual relationship will have a much easier time assessing vendors and terminating vendor relationships safely and efficiently.
In this guide to collections vendor termination best practices, you'll learn how to assess vendor relationships that don't seem to be performing as they should, how to figure out if and when you should terminate the relationship, and how to minimize the risk and complication when you do.
When should I terminate a collections & recovery vendor relationship?
1. When they’re failing to perform.
“If you’ve done a good job of laying the foundation, then it should be obvious to [your agency partners]” that they aren’t meeting expectations, says Bekah Luebcke, VP of Operations at Crown Asset Management. Failing to perform is probably the most common reason for vendor termination.
This is especially true for collection agency partners. Even great agency partners can struggle to hit performance metrics, but if they’re not working on meeting those goals, or even coming close, it might be time for a harder look.
Collections & recovery executives should meet with their agency partners at least monthly to discuss key metrics, and the contract should establish what your expectations are for that agency. These terminations typically don’t happen quickly, and it’s recommended that collections & recovery executives give their agency partners at least 6 months, but ideally 12 months, to correct any performance issues before ending the relationship.
Here are three key questions collections & recovery executives should ask when they are considering terminating an agency for performance issues:
- How are my other agency partners performing? If all or most of your network is having trouble meeting performance goals, it might be time to adjust those expectations. Remember to work with your partners when you’re developing goals; this keeps goals realistic and means that your agencies are well aware of your expectations.
- Is my agency partner compliant? Agency partner relationships are balancing acts. If your agency partner is failing to meet performance expectations, but continually exceeds compliance expectations, it might be worth extending the relationship and working through the performance issues.
- Do I have a good relationship with the agency partner? Good vendor relationships can be hard to come by, and if the relationship is positive and the partner seems willing to work through the performance issues, you should be willing to give them that chance.
If you’ve done all of these things but your agency partner still cannot perform as required, then they may be candidates for termination.
Agency partners are not the only vendor relationship that can have performance issues. Technology vendors, like recovery management platforms, can also experience performance issues, like downtime or outages. Technology partners require a ton of time and effort to onboard, so you have to be willing to give that vendor a wide berth when it comes to performance. Typically, you should only consider terminating a tech vendor when there are egregious performance issues.
2. When they neglect your relationship.
The best performing vendor isn’t always your best vendor.
This mostly relates to collection agency partners, but could be applied to any number of other vendors, like technology platforms. If your vendor is performing to expectations, but neglects other areas of their relationship with you, it might be time to consider termination. Relationship neglect can take multiple forms, but typically involves the vendor blowing off contractual obligations, like missing meetings or failing to provide deliverables.
Here are two key questions collections & recovery executives should ask when they are considering terminating an agency for neglecting their relationship with you:
- Has the relationship manager on either side changed? Especially now, during the Great Resignation, it’s important to consider whether your partner lacks consistency at the relationship management level. “You should have a refresher on contractual obligations every time there is someone new involved in managing the relationship,” whether that’s on the creditor side or the partner side, recommends T.R. Brown, VP of Consumer Finance at SmileDirectClub.
- Was the relationship always like this? If getting what you needed during onboarding was difficult, the relationship may have been doomed from the start. On the other hand, if your vendor had a great onboarding process and have only recently begun to neglect your relationship, it’s probably worth it to try to work it out with them.
Again, terminating a vendor isn’t easy, and collections & recovery executives should give their partners 6-12 months to try to right the ship before deciding to part ways.
How do I manage the risk when I terminate a vendor relationship and how can I make the transition to a new vendor smoother?
1. Plan for this contingency from the beginning of your vendor relationship.
Even though your goal should be to maintain vendor relationships for a long time, a smooth termination starts with onboarding. Here are three ways to ensure a smooth termination down the line:
- Start with the contract. Be transparent with your vendors and explain your expectations. Don’t rely on the language in the contract to convey them for you.
- No gray areas. Operate in clearly defined areas of performance and relationship expectations, and make sure vendors operate there, too.
- Recognize red flags during onboarding. If you have difficulty during that process, you’ll almost certainly have problems later.
2. Understand the risk, minimize the risk.
Sometimes, once you’ve informed a vendor that they are terminated, the relationship becomes difficult to manage. You’re no longer a revenue producing client for those vendors, and so ensuring their compliance with contractual obligations can be challenging.
The highest risk comes with terminating agency partners, since they deal with consumers directly. Here are three ways to minimize risk after terminating a collections & recovery agency partner:
- Verify the data. This one is true for all vendors that receive data from your organization, not just agency partners. If your vendor receives consumer facing data, especially a collection agency, you must ensure that any account that was placed with them is returned. Your IT and data teams will play a major role in this process, so make sure they’re familiar with the vendor and the contractual obligations.
- Cool it. It is a direct FDCPA violation to have one account with two different agencies. Implementing a “cooling off period” can help protect you from that risk. Brown recommends at least one week after recalling accounts before replacing them with another agency. Pro tip: sending handshake letters to consumers before placing their account with a new agency can alleviate confusion.
- Tell your new agency partner about it. Your new agency will want to evaluate the inventory you’re sending to them, and providing the context for why they’re receiving it is incredibly valuable so they can train their agents to treat the accounts with care.
Terminating a vendor isn’t an ideal situation, but following this guide can help make the decision easier and mitigate risk during the process.
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