Effective Communication: The Client-Vendor Dilemma

A key driver in creating an effective client-vendor partnership is communication. Although this seems to be a relatively simple task, the ability to accurately convey a thought can be very difficult. Communication is affected by many factors, including:

• The words that are chosen.
• The tone of voice used.
• The experiences and receptivity of the listener.
• The circumstances surrounding the meeting.
• The relationship of the parties involved (i.e., client and vendor, boss and subordinate, etc.).

In addition, environmental factors, such as corporate mergers and increased competition, have significant impacts on whether or not the message is received in the manner expected and desired.

Faced with the need to successfully manage the vendor relationship, many recovery professionals recognize that the nature of the client-vendor relationship has changed. Instead of approaching the relationship from an adversarial perspective where one side “wins,” best in class companies are building partnerships where two-way communication is commonplace. Understanding how the work effort impacts operations, and identifying the needs of each party to be productive, are being given more emphasis. Managers in these situations are beginning to see the rewards of partnering, and have placed communication as a primary area for continued improvement.

One of the greatest lessons industry leaders have learned is that assuming communication channels are open, and that all is well, can be fatal errors. Significant problems, and costs, can result when a client and vendor delude themselves into believing that they are communicating well with each other, without clarifying and confirming this fact. While the most obvious cost is monetary, frequently trust, reliability and level of confidence also suffer. It is not rare to find that problems in the client-vendor relationship can be traced to the initial contract. Many managers might find this hard to believe because of the formal nature of the agreement, the time consuming review process, and level of authorization needed to enter into the contract. It is assumed, generally, that because of these factors, all parties have read and understand what they are expected, and obligated, to do. In addition, by signing the contract, all parties agree to be held legally bound by the agreement. However, unmet expectation is a primary factor for the termination of a vendor.

Take, for example, a situation in which a client believes additional legal action by the vendor would improve results. In order to motivate the vendor, the client agrees to increase fees on the entire portfolio in return for additional legal effort. The client believes that their expectation will be met. Unfortunately, the vendor either isn’t motivated to, or capable of, increasing its legal efforts. The most obvious costs that could result in this instance would be increased fees to the vendor without offsetting increases in collections. The client’s displeasure, however, would probably have a damaging, if not terminal, affect on the relationship with this vendor.

The underlying issue in this example is that clarification and confirmation of client and vendor expectations, as well as the vendor’s ability and desire to meet these expectations, must happen. In addition, the client must conduct regular oversight of the vendor and provide timely feedback so that the vendor has an opportunity to comply. In this way, the potential damage from this situation can hopefully be minimized.

Despite the fact that situations such as this are avoidable, factors such as day-to-day business pressures often cause managers to overlook problems until they are out of control. Research conducted by Resource Management Services, Inc., including data published in the Comprehensive Agency/Attorney Usage Study, indicates that the majority of survey respondents audit outside collection vendors. However, when asked for the factor that determines whether or not an audit should be conducted, over 50% mentioned the existence of problems or issues with the vendor.

Current theory on performance evaluations suggests that it is far more effective to establish a routine for evaluation and feedback with vendors or employees. By creating regular feedback sessions, based on formal and informal input, managers are able to start the process toward positive communication. The goal is for clients to create an environment in which both they and their vendors can focus on objectives, specific performance, and opportunities for improvement, without the fear that poor performance is the cause for the interaction. In this way, the negative connotation that is frequently associated with the client-vendor contact can be diminished.

Another prime area that can result in unmet work effort is skip-tracing. As an example, suppose that the client agrees to increase fees on the entire portfolio, but expects that skip-tracing activity will increase. The vendor, in turn, lacks sufficient technology, staff or other resources necessary to fulfill this expectation. Due to the specific circumstances involved (i.e., cost, deficient resources, etc.) the work is not done. This situation will again result in increased costs to the client that are not balanced against increased collections, and the relationship will be damaged. From the vendor’s perspective, if they comply with the client’s expectations at the expense of their own financial stability, they place both themselves and the client in a risky position. Ideally, the client must ensure that the vendor understands and agrees to requirements, and that they are able to comply. In return, the vendor must recognize that in agreeing to the requirements, they must have the resources (i.e., financial, human, technological, etc.) to comply with their client’s expectations. Regular contact enables both parties to identify any issues immediately, and gives them the opportunity to resolve these items before the relationship is negatively impacted.

In addition to expectations of specific work effort, requirements for supporting items, such as trust accounts, are vital to the health of the client-­vendor relationship. When requiring a dedicated trust account, many clients expect that this account will hold only its funds, without co-mingling with funds of the vendor or other clients. In addition, this account would retain the funds from the initial deposit through transfer to the client. Although it does not have an immediate impact on recovery performance, the proper establishment and management of the trust account by the vendor can be fundamental to ensuring a positive working relationship. The dedicated trust account also creates a trail that enables an objective and comprehensive audit of financial activity to be conducted.

Requirements are important, but they must be clearly communicated to the vendor and reviewed on a regular basis; otherwise, they provide little value to either party. Any type of relationship can be difficult to manage, even when world class levels of communication exist. The primary goal in an effective partnership is to maintain ongoing contact, while focusing on ways to clarify and confirm expectations. In support of this goal, following is a list of practices that can strengthen client-vendor interaction:

• Conduct a post-implementation review of contract requirements and vendor operations.
• Implement a regular audit series.
• Ensure the audit team has a clear understanding of contract requirements and acceptable business practices.
• Maintain frequent contact between the client and vendor, focusing on opportunities to improve the relationship.

These are just a few of the many techniques that can be used to strengthen the client-vendor relationship. Underlying each of these items is the commitment by the client and vendor to build a superior relationship in which goals and objectives of each are met. First and foremost, effective and ongoing communication must be a primary concern for all parties if they want to achieve the most effective and profitable partnership possible. It is also important for all parties to recognize that the mere existence of a contract does not ensure that the work is being done in the way it should. Both the client and vendor should work toward creating an agreement that is acceptable to each, and to fulfill their respective responsibilities in a timely manner.

(Reprinted with permission from The Best of the Agency Examiner©)

Jon Marie Galvan is Project Manager for Resource Management Services, Inc., a consulting firm specializing in collection and recovery since 1986. For more information, please call (562) 906-1101, or visit our website at www.ResourceManagement.com.