How much do collection agencies charge?

How Much Does it Cost to Hire a Collection Agency?

That one question may be keeping you from finally bringing in a collection agency for your growing list of accounts receivable—in fact, it very well may be the only reason keeping you from finally hiring a collection agency!

After all, you’re losing money because accounts are going unpaid—

But Hesitation due to cost may delay businesses from hiring a debt collection agency, further delaying collections.

So while debt collection agencies charge in a few different ways, here are two of the most common payment structures: contingency-based and flat-fee.

Contingency based debt collection services

Most debt collection agencies use the contingency-based model, often referred to as “No Payment No Fee” collections. A contingency rate means the collection agency charges zero upfront to work for you. The collection agency will charge a certain percentage only if they successfully collect.

For example, a landscaping company is owed a total of $10,000 from 20 customers. The lawn care company hires a collection agency at a 25% contingency rate.

The small business debt collection agency collects 10 accounts successfully, for a total of $6,500 in payments. The agency keeps 25% of the $6,500, which comes to a total of $1,625 and the company gets $4,875 which they would have never got without hiring the collection agency.

Contingency fees normally average 20 to 35 percent of the total amount of debt collected.

Factors that condition the contingency fees are: Age of account Average balance Account volume Account industry. So let's break it down;

• Age of account—Likelihood of debt recovery decreases as debt age increases—and so, because older accounts are generally harder to collect on, they generally demand higher fees.

• Average balance—Depending on the debt collection agency, bigger fees are sometimes charged for accounts with smaller balances.

• Account volume—The general opposite of the above; this means that if you bring a larger volume of accounts to a debt collection agency, the lower the fees they’ll charge you.

• Account industry—Fees also depend on whether it’s credit-card debt, medical debt, and so on. Because the account industry of each debt—meaning, what category of debt—has different volumes, averages and ages of accounts receivable, there are varying approaches to debt collection here, too.

Flat Fee:

Now let’s talk about flat-fee debt collection services.

With a flat fee, you get charged a fixed fee that is charged upfront—regardless of account age, volume, industry, average balance, or any other variable.

The flat fee is generally $15 to $25 per account.

Choosing the right agency:

Handing your outstanding debts to a collection agency allows you to focus your time, energy and resources on production—and success!

Fair Capital delivers effective third-party collection services at affordable rates. If you’re considering outsourcing your collections, or looking for a new collections agency, drop us a line! We’d love to talk to you.

The Pros and Cons of Hiring a Debt Collection Agency

We all expect customers to pay on time, but unfortunately, this is not always the reality.

Using a debt collector has some obvious advantages, but there are disadvantages, too.

Let’s take a look at the advantages and disadvantages of using a debt collection agency.

The Pros

Successful and Faster Debt Recovery.

Recovering past due debts can be complicated, but when you hire a debt collection agency, people pay their debts faster and more often. Debt collectors are experienced professionals trained to persuade debtors to pay. This is one of the reasons why hiring a collection agency increases the odds of collecting delinquent receivables.

Remove the Hassle and Heat from your company.

Reaching out to customers about their overdue balances is not always very comfortable and no one loves the job of arguing with clients who refuse to pay. When you hire a collection agency, you free yourself from the unpleasant task, giving yourself time to focus on what’s important – your business.

Debt collectors have tools and resources.

“Effective debt collection agencies,” says Steve, a team supervisor at Fair Capital, “will use advanced skip-tracing technology to help locate debtors. Debt collection agencies will also report delinquent accounts to the credit reporting agencies, which may negatively affect a debtor’s credit score. Debtors will often make arrangements to pay their debts to avoid damage to their credit.”

Legal Protection

There are numerous federal and state laws, that govern the debt collection industry and well-informed debtors won’t hesitate to sue if they know a law has been broken. Debt collection agencies are well-versed in these laws and rules for each individual state, as well as federal laws. Hiring a collection agency will mitigate the legal risks involved in trying to collect the debt on your own.

Shifting Focus Back to What Matters

Letting a collection agency manage debt will allow you and your employees to focus on your core business activities, instead of trying to manage debt collection efforts.

Legal Assistance A collection agency can take care of everything for you. Filing a lawsuit to collect on a debt is just part of the collection process. Collection agency's know what they are doing, and will have a greater chance of success than if you hire a lawyer yourself.

Additionally, with only around 80% of judgments being collected, a collection agency will know when it is practical to file a lawsuit. To deliver a complete service, a collection agency will utilize tools to enforce the judgement efficiently.

The Cons

Debt Collectors Charge for Their Services.

The cost of collection services Is something to consider. The cost of employing a collection agency may range from 20% to as high as 45% of the amount collected, according to Fair Capitol, if working on a contingency model. However, most companies believe collecting some debt is better than losing everything owed.

Client Relations Could Be Affected.

Outsourcing to a debt collection agency can cause a negative reaction from clients; receiving a call from a collection agency can put a bad taste in a customer's mouth, especially if the agency lacks empathy skills. Avi, the CEO of Fair Capital often says, “The two vital components of a debt collection agency are Compliance and Respect.”

The Bottom Line

There’s no one-size-fits-all answer to the debt collection agency debate; some businesses will benefit more from bringing in outside help, and some less.

With all this in mind, it is clear that drawbacks can be reduced by being mindful of which agency you hire.

Hire a collection agency you can trust

(855) 505-5669

What information does a debt collection agency need?

Information is power, especially when it comes to debt collection. Providing your debt collection agency with the right information will assist the agency in recovering your business debt.

In order to ensure that your company collects the money it is owed, it is important to provide your debt collection agency with all required and applicable information.

Key elements a collection agency will need to collect your debt, is your debtor’s;

• Name

• Address

• Phone

• Current Balance

• Delinquency Date

• (SSN and/or DOB)

This information will aid a debt collection agency in tracking down difficult-to-locate debtors and will ensure they are pursuing the correct person.

We advise you to send whatever information you have, even if you think it is outdated or unimportant. A good collection agency can research using an old address or an old phone number.

Relevant documentation as signed contracts, invoices and other paperwork to support your debt are very useful as a debt collector can speak more intelligently when having the paperwork to back up the claim. The appropriate documentation is even more critical when it comes to recovering a “disputed” debt.

Most outstanding debts are pretty straight forward; a customer owes your company and is not paying. But if your debt has other factors that cloud the amount owed, make sure to notify your debt collection agency. It is also important that you notify a collection agency if an account has previously been disputed.

Notice of bankruptcy or an attorney letter of representation should always be conveyed to your debt collection agency immediately upon receipt. State and federal laws may impact the debt collection process if a debtor is represented by an attorney or under the protection of the bankruptcy courts.

Information you should not share with your debt collection agency.

Medical practices utilizing a debt collection agency should avoid sending health protected information not needed to recover an outstanding balance.

Thinking of hiring a collection agency but not sure where to start? We can help! Download our Submission Guide and Form.