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Can I negotiate collection agency rates?

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Finances can be difficult to manage, and when companies fail, a good percentage of that is due to finances. Poor allocation of resources, or inability to collect from customers all falls under financing. The inability to get customers to pay their debts leads to major problems for the company. Financial problems lead to instability, and the inability to function properly. As a business it is important that you get paid for your products or services, and not all customers are willing or eager to pay. So, to combat that problem and keep finances in track many companies choose to hire a collection agency to ensure payments.

When you hire a collection agency it is important to understand the stipulations and restrictions, and what hiring a collection agency means to you. For example, if you hire a collection agency, you will have to pay for their services, and the rate which you pay needs to be affordable.

Let's take a look at how you pay a collection agency: Such companies are typically paid on commission. This commission varies according to agency, though it is usually around one-third of the collected amount. Though rates vary, this is standard. However, some collection agencies charge a flat fee. The rate a collection agency charges is going to come out of your pocket, as in that is profit you will not get. Thus, negotiating with collection agencies to get a rate you can afford is important.

One thing you have to realize as well is that you only use collection agencies to get payments from customers you no longer value. You pay for their services because they generally come through, and collection agencies aren't known for their tact.

So, now that you know how collection agencies charge, and when you would hire one, as well as why, let's take a look at how you can make what you pay them right for you:

There are a variety of ways you can negotiate collection agency rates, to make a win-win situation.

For starters, collection agencies need to make money as well, so to get them to lower their rates you have to give them something back. Most collection agencies will offer a discount if your company assigns them multiple accounts or the balance is very high or the account is new.So one way to negotiate for a lower rate is to base rate on number of accounts. For example, you would pay 30% of collected amount if they only collect on one account, but if you have them collect on 10 accounts then you only have to pay 20%, 50 accounts 10% etc. The amount and the price breaks will be determined through your negotiations, but remember, if you can assure them continued business, they will give you a rate break.

With most collection agencies there are generally three rules to follow to determine what rate your company will be charged:

The first of these rules is balance due. This is a highly negotiable point. In general if you have a delinquent account totaling $5,000 or more, your company should be able to get a discounted rate. The amount of that discount may be from some arbitrary scale the collection agency set up, but trust me, they want your business, so play a little hardball and you will likely get a better rate.

The next rule is the age of account. An account that is 60 days past due has a greater chance of being collected than a two-year-old account. Collection agencies that get paid based on how much they collect will not have a large incentive to work on older past-due accounts, much less offer you a discount on them. So, to get the best rates, and thus pay less in the long run, you are going to want to try and negotiate better rates for the accounts that are not too far overdue. If the account is still in the early stages of being past due, you can offer a significantly discounted rate, and the collection agency may still jump at it as their chances of collection plummet exponentially the older the account gets.

While we have already discussed it, the third way to negotiate rates is by getting volume discounts. If you have multiple accounts to collect, you will likely be able to secure a discounted rate. What sort of discount can you expect to get? For example, if your company has five delinquent accounts for $4,500 that are less than a year old, it should get 30 percent to 35 percent off regular price.

It is possible to negotiate collection agency rates if the circumstances are right and you are smart.

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