BOSTON — Success requires good vendor management, but creditunions can gain revenue by outsourcing collections, said Marney MacFadyen, vice president of sales atCredit Control, a St. Louis-area firm that provides theservice.

MacFadyen shared the risks and rewards of the practice withattendees at NAFCU's Annual Convention on Wednesday at the HynesConvention Center in Boston.

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Benefits of outsourcing past due loans include reduced overhead,compliance and technology costs, new revenue streams, and incontingency agreements, costs based only upon results.

“You can also redeploy internal resources to a more customerfacing role, as opposed to having them in collections,” MacFadyensaid.

Risks include reputational risks that come from allowing employees outsidethe credit union work with members, she said, and the potential fordata breaches.

Consolidation within the collections industry, due to fallingdelinquency rates, makes choosing a financial stable vendorcritical. MacFadyen said credit unions must also stick with firmsthat specifically work with financial institutions, rather thanfirms that work in other industries, such as those that collectmedical debt.

And, even within the financial institution market, credit unionsshould seek out firms with experience working with credit unions,because “even credit union debt is different than bank debt.”

MacFadyen, who said she worked as a credit manager and managedrelationships with collections vendors, said communicatingperformance and service expectations is often an overlooked bestpractices component of the strategy.

“If your service model is that if a member calls you, you willcall back within two hours,” she said. “And, you may expect that ofyour vendors, but if you don't communicate that to them, they maynot respond.”

She even suggested credit unions conduct performance reviews forcollections vendors, much as they would do for their ownemployees.

Volume is also important to a successful vendor relationship.Credit unions that hire collections vendors to handle 1,000accounts a month must deliver that volume, because vendors not onlybased pricing upon the number, they also dedicate employees to theworkflow.

“In reality, if you're only placing 100 accounts a month, thevendor can't be profitable,” she said. “Then, you'll have aperformance issue because you're wondering why they can't work youraccounts more effectively, and at the same time, the vendor islooking for more volume because they've set up a strategy forthat.”

Credit unions should also grill potential vendors to ensure theycomply with all regulations and are licensed in all states wheremembers reside. And, the firm must have strong financialcontrols.

“You want to make sure your money collected on your behalf isn'tcomingled with the company's money,” she said.