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 45 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.
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.