How much do collection agencies cost?

How much do collection agencies cost? There are two ways that collection agencies charge for their services. The first is a flat or fixed fee for services. An example would be Agency A will send out 3 letters and make one phone call for $10. This is the usual method for smaller debts. For larger debts the company charges on a contingency basis. This means that they charge a percentage of the money collected. The fees also go up if the agency involves a lawyer in the proceedings. This can raise the percentage from an average of 20-35% to about 50%. A good agency will first exhaust all methods available to them to persuade your debtor to pay without legal involvement.

Obviously the contingency basis is to your advantage because you only pay if they collect, giving them incentive in the outcome as well as you. This is a good insurance that the company will do their best to recover your money. This percentage plan is probably more expensive in the actual amount paid to the agency but because they have an interest in the debt on contingency you can't measure how much more they will collect.

Collection agencies also offer discounts for newer accounts, multiple accounts and if the total is more than $5000.

Collection agencies know that the percentage collected on debts over 1 year old is less than 30% giving them very little incentive to take these accounts let alone offer a discount for them.

Many collection agencies offer a discount on multiple accounts. So finding an agency that you can work well with is important so they can do all your collecting and offer you a bulk discount.

If you have collection accounts in excess of $5000 you should also get a discount. It is wise to try a few agencies out before you give all your business to one. It is illegal to give the same account to more than one agency but you can give different accounts to several. Shop around and try before you make a final commitment.

There is another cost that must be considered. More and more courts are finding the companies that hire agencies that use illegal collection practices guilty so you must be careful that you choose only agencies that adhere to the FDCPA and have good reputations for successful but professional business practices. You also want to find an agency with an Errors and Omissions Liability insurance policy for just such an event as a harassment suit from an unhappy debtor.

To have a successful relationship with your agency good communication between your business and the debt collection service is essential. Here are 5 things you must learn from the agency.

1. How are you going to get the delinquent account information to the agency? Will you fax them or snail mail it? Are they in M-F or what is the best time to get them the information to have it handled in a timely manner
2. How will the collected funds be given to you? Will you have them mail a check and when are checks cut? Will they let you know when the funds have arrived?
3. What reports will the agency be providing you with success rates and efforts made and how often will you receive these reports?
4. How do you stop collections if the debtor pays you directly after you have turned it over to them?
5. You should share as much as possible about your business with the agency, your products, accounting process, and hours of operation. This will help them collect the money owed to you.

Collection agencies can be a great answer to a hard question for small businesses. Finding out as much about your agency as possible will help you determine the cost of the agencies services for your business.

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