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What are the costs of using a collection agency?

Tags: collection_agencies, using_collectiong_agencies, costs_of_collection_agencies
One of the more perplexing and annoying aspects of owning your own business or managing a business is dealing with the question of collection agencies.Should you use a collection agency?What can a collection agency do for you?What are the costs of using a collection agency?
What is a collection agency?
Collection agencies are, generally speaking, third party agents that are called in by companies for the purpose of collecting debts that are owed to them by customers who will not pay off their account.Some companies actually choose to give their internal accounts department a separate name, address, phone number, and fax number, so that when the accounts department tries to collect on accounts, the customer will be more intimidated and will believe that a third party agent is trying to collect the debt.Other companies will choose to hire a credit manager to be in charge of all of the collecting of debts.However, you might find that it is more profitable to your company to hire out your debt collecting to a third party.
When should I call a collection agency?
When should you call in a collection agency?Studies have shown that you have your best chance of collecting on a debt when it is only 60 days to 90 days past due.If you wait any longer than three months to attempt to collect on a debt, then your chances of actually getting your money back fall dramatically.The longer you wait, and the larger the debt, the harder that it will be to retrieve what is owed to your company.This is why it is important to call a collection agency sooner rather than later.

Before you call a collection agency, you should send one letter of your own or you should make a polite phone call to your customer.It might just be that your customer has had a busy schedule and a faulty memory.If your customer starts to complain and to fight with unreasonable requests and statements, then you should call a collection agency right away.It is often times much easier for a third party collection agent to take care of these troublesome customers who simply want to avoid payment.
Collection agencies also generally have better results in securing money owed than your own attempts will do, because of their ability to concentrate all of their efforts on getting money.Collection agencies also have many more resources that are available to them, and are more aware of the laws surrounding collection issues.
What are the costs of a collection agency?
The majority of collection agencies work by commission.They will take a certain percentage of whatever debts are retrieved through their services.Some collection agencies only or also charge a flat monthly fee.Other collection agencies will charge you for every letter that they send or every call that they have to make to a customer.
Collection agencies will probably divide accounts into different categories.Standard accounts are, generally speaking, ones that are about 60 days old, have reliable contact information such as address and phone number, and a high chance of actually collecting the date.A pretty standard and reasonable commission percentage on this type of debt is 25%, unless the debt is smaller, such as under $75.In this case, the commission percentage might go up to 50%.This rate hike will most likely also apply to any debts that are older, and thus deemed more difficult to collect.
When you are looking at different collection agencies, if you have a large number of debts that you want to be pursued and you will be hiring the agency on a regular basis, then you will want to see if the agency offers a flat rate, such as about 18%.
The best way to find a collection agency is to look at their websites to determine what types of charges and fees will best fit your company's financial situation and the types and sizes of accounts that you need to be collected.

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