What percentage of money owed is typically recovered by a collection agency?

What percentage of money owed is typically recovered by a collection agency? The percentage of debt recovered is determined by how old the debt is, the percentage of commission, and the percentage recovered.

Most debts less than 3 months old recover about three-quarters of the amount owed. As the length of time increases the amount recovered decreases. At six months the average drops to close to half and by 1 year only about one third of the debt will be recovered. These numbers reflect the need to start your collection proceedings as soon as possible after the loan becomes delinquent.

Collection agencies are able to help small businesses with the phone calls and letters required to get the debt paid. There is a federal law called the Fair Debt Collection Practices Act that governs collection agency practices so that they don't bully or antagonize the customer. Small businesses may find that turning a collection account over to a collection agency actually saves them money by helping them collect the debt without using company resources to repeatedly contact debtors.

The percentage of money recovered by a collection agency is also determined by how much money you pay the collection agency. This is usually a percentage of the debt collected and is between ten to fifty percent with the average being about twenty five to thirty five percent. So the amount collected is less the amount you pay the agency to get it for you.

Collection agencies also have a rate of recovery percentage that is an important factor. If you go with a company who charges less but has a lower rate of recovery you will receive a lower percentage of the debt. For example if Collection agency A has a twenty five percent commissionbut has a seventy percent recovery rate and you give them ten thousand dollars to collect for you, you will receive five thousand two hundred and fifty dollars or fifty two and a half percent. But Collection agency B has only a ten percent commission but also has only a forty percent recovery rate you would receive only three thousand six hundred back or thirty six percent recovered debt. So the amount you recover is not just affected by the commission charged but also the percent each agency collects.

In order to get this rate of return percentage you might have to ask the Collection agency for some referrals and ask them what their rate of collection has been historically with the company. Checking your collection agency out before hand could save you lots of money in the long run. Other questions to ask the referrals are if there were any problems or concerns and how they were resolved. You can ask to see the form letters that will be used to collect your debts and also what training any phone call employees receive to help them get results without offending your customers.

Agencies also must have licenses for different states to collect from debtors there so you will want to check that the agency you are working with can collect from the state most of your debtors are in.

Here are 5 Steps to avoid accumulating bad debt:

1. Be careful when offering credit. Carefully check credit references of each new account and don't extend more credit than the firm can handle.

2. Explain transaction terms thoroughly. Make sure your accounts know when you expect payment, and clearly detail any credits or penalties for early or late payment.

3. Follow up overdue accounts. Customers need you to promptly send statements and reminders of payment due dates.

4. Institute a series of overdue notices. You should schedule regular written and oral reminders before even considering a collection agency. This will not only help save money, but will also avoid the ill will that can be generated when using a third party to collect the funds.

5. Set an absolute due date and stick to it. As a final step, set an absolute due date before the account is turned over to a collection agency. Don't extend the deadline, but do give the debtor warning of this final payment date.

Once turned over to a collection agency you can expect 75% to 30% of a debt to be recovered. These numbers are directly related to the amount of time it takes to collect the debt. So don't delay notifying your debtors when they are delinquent.