Compare Collection Agency Prices – Calculate The Cost of Debt Collection in 2020
Are you ready to hire a collection agency? What are the fees like these days? Here’s what you need to know about the cost of debt collection in 2020.
In the first nine months of 2018, Americans had a cumulative $3.93 trillion in consumer debt. This doesn’t include mortgages. $1 trillion of that amount is from credit cards.
If your businesses needs an affordable debt recovery solution, the guide will help you ask the right questions.
Debt Collection Companies to Watch
Debt collection is a touchy subject. Watch out for the way an agency treats your debtors. It reflects on your reputation as well as theirs.
Credit Management Company
A company with a longstanding service reputation. Since 1966, Credit Management Company has performed collections for government, healthcare, education, and commercial sectors.
Recovery Solutions Group
This collection agency only collects commercial debts. It boasts a national attorney and private investigator network. Recover Solutions Group collects debts in the U.S. and internationally.
They offer personalized quotes to help you narrow down the cost of debt collection based on your circumstances.
This credit rating giant provides services including collections, loans, billing, and analytics. This is one of the largest contingency fee-based collection agencies in the US. They handle commercial and personal debt.
Global Executive Solutions
For more than thirty years, Global Executive Solutions offers online credit reports, letter services ad legal services to commercial, consumer, and government accounts. They offer flat-fee and contingency-based services.
Prestige Services Inc.
The U.S. based Prestige Services Inc. collects commercial debt. It has a 20-year business history and an experienced, professional staff. It provides professional skip-tracing and investigation to locate debtors.
Revenue Assurance Partners
This company provides first and third-party debt collection, customized to your needs. They allow you to outsource some or all internal collection processes. It can provide audits, reports, legal referrals, and other collection services.
This collection agency specializes in small and mid-sized businesses. It offers fixed-fee pricing for some service. More advanced service is priced by contingency.
For debts more than 120 days delinquent, Rocket Receivable employees more assertive collection tactics. Recovery of these funds is split evenly between you and the collection agency.
An international powerhouse, this agency focuses on international commercial debt recovery, credit reporting, and safely moving funds from one country to another. It has the ability to report companies to the U.S. Embassy and the Commerce and Trade Division of the U.S. Government.
With estimated holiday shopping, Americans’ credit card debt can only increase. The estimate for 2018 is by 5%, a mere $600 million or so in extra debt. How much of that is going to haunt American consumers as overdue bills?
71 million adults in the U.S. have a debt in collections today. This number is slightly lower than just a few years ago, but it still means 1 in 3 Americans can’t pay their bills. How much does overdue or unpaid debt cost your business?
Is the cost of debt collection more or less than your business losses from bad debt? Read on to learn more.
Where is Debt Coming From?
All these debts could be anything from a forgotten parking ticket to a winter fuel bill in dispute. Debt collection agencies work help businesses and government agencies collect the money owed.
- The average U.S. household has $15,482 in credit card debt.
How did consumers accumulate the debt is the best question. Are consumers simply eating too much avocado toast, too often as alleged by certain political personalities? Or are they drowning in student loans?
- U.S. college graduates in the U.S. end their school careers with around $37,172 in school loan debt on average.
This statistic is not as shocking as the size of the average payment. New graduates can expect payments to begin within 6 months of leaving school. The average monthly payment is a whopping $400 per month.
The largest type of debt in collections is unpaid medical bills. Out of control medical expenses drive the vast number of bankruptcies in the U.S. More than 20%of U.S. households have some medical debt.
Should You Hire a Collection Agency?
It may surprise you to know that the median amount sent to collections is $1,350. You might have been expecting a great deal more. These small amounts suggest that companies are generally very successful in collecting what is owed to them.
Most small companies lack the personnel to have a fully-functioning credit department and customer collections unit. It does not make sense to dedicate a large part of your staff time to collect relatively small amounts. Especially since these small amounts tend to come from a fraction of your customers.
This does not keep you from making some effort. A small investment in an automated invoicing system and mailing monthly bills makes collections much easier. Have your sales representatives place gentle reminder calls to companies with overdue bills while they are calling on the clients.
Steps to Collecting From Delinquent Accounts
Sometimes it doesn’t matter if your customer is a personal friend or a member of the family. You have a right and a business obligation to see that you get paid for products or services tendered. Be strategic in your approach to these situations.
Take Out the Emotion
After you’ve given your time and effort to a customer and then they stall payment, you might be upset. No one can blame you. They just committed theft of some precious hours of your labor that you can never get back.
It’s vitally important for you to breathe deeply and count to ten before you speak. Maintain a calm demeanor. The more emotion that leaks in, the less likely that you’ll collect on the debt in full.
If your customer feels it is personal, you have lost control over the narrative. They can rage right along with you and choose not to cooperate. Your anger or lack of it has a strong impact.
A pleasant and polite attitude is much more likely to be met with the same.
Assert Your Rights
You don’t need any professional training in accounts receivable or debt collection. However, a little education about your rights and legal options will keep you from making expensive mistakes.
Blindly fumbling through the process is no way to ensure success. For your protection, you need to understand the actions that are permitted and the ones that are prohibited. For example, it is completely legal to hold certain individuals accountable for some kinds of business debt.
Did you know that you can properly begin debt collection the minute you fulfill you contracted exchange? While there’s no free central online registry of bankruptcies, you can go through steps to find someone’s legal address and tax returns to speed things up.
Document, Document, Document
Nothing is more important than documentation in debt collection. Every time you talk to a customer on the phone, record the phone call and take notes. Copy every piece of correspondence and send it with delivery confirmation.
Archive email correspondence and keep the message threads. Do the same with texts. Keep a diary or contact log of calls and visits you make to the customer – whether at work or home.
Be Persistent But Not a Pest
Harassment is against the law. You are limited in the time and place you may make contact. Harassing a customer who already knows about their debt to you is ineffective and can backfire.
Making frequent contact plays an important role in debt collection. However, there are rules about how frequently you can check in with a debtor. Harassment is calling your customer every morning at 8:00 am for two months straight.
A judge would look much more favorably at a persistent and polite call every few days to a week. Calls can include giving options to begin repayment.
Settle for Less If You Can’t Get It All
Pretend you have a customer who owes you a large amount and is more than 6 months past due. You already went through the polite stages of debt collection and are now in the purely frustrating stage. You are pretty sure that they are just going to wait you out and walk away.
Before you write this debt off completely, consider negotiating a settlement for less than you are owed, but more than nothing. For some debtors, this is a viable solution.
Delinquent accounts receivable are a stress-related headache to you, but they have severe anxiety power over the people who owe you. If you come to them and say you’re willing to take a portion of the debt off to avoid involving the courts, they may eager to settle.
When to Hire a Collection Agency
Do you have plenty of overdue accounts receivables? Are you spending too many of your limited payroll hours on chasing debt instead of servicing good customers? It’s probably worth your time to use a dedicated professional.
A collection agency’s only job is to recover debts.
Not only does this save your time and keep you out of legal trouble, but it is also likely to be more effective than your efforts alone. There are specific laws that govern debt collection. Do you have a specialist in your office?
The Fair Debt Collection Practices Act (FDCPA) governs how debts may be collected. Collection agencies specialize in the complications of FDCPA regulation.
The Cost of Debt Collection
Most collection agencies operate on contingency fees. This means fees are a percentage of the collected debt. Many factors contribute to the pricing, but in the end, it comes down to confidence in how much you can collect.
The cost of debt collection can range from 10% to 95%. Many factors determine what can be charged. These include such as the number of debts in collection, the size, and age of the debt portfolio and the effort required to collect.
To give you an idea of how much it costs:
The fees for debts aged up to 90 days can be 20% to 50% of collected revenue. Older debts aged 90 to 120 days require more work. Expect a fee of 30% to 60%. An account a year or more in arrears might only yield you 5%, with the debt collection agency keeping 95% for their efforts.
Fees to Avoid (or at Least Question)
In addition to contingency fee for service, there is the flat fee model. In this case, you will pay a flat fee of $10-$15 per account, regardless of the type of service required or the results. Avoid paying fees without demanding results.
Some collection agencies also purchase debt outright. They pay you a fraction of what is owed and then they turn their resources on collecting the debt for themselves. For very hard to collect debts, this may be the answer, but it can damage your reputation if the new owner of the debt is aggressive or indiscreet.
What to Look for in a Collections Agency
There are two types of collections service. First-party collections appear to come from you. This method looks like you have your own in-house debt collections office.
The agency provides letter correspondence and phone calling services. Letters then phone calls follow a structured escalation of demand. For customers who fail to pay after first-party collections, businesses may escalate to third-party collections.
This service applies additional written pressure and phone strategies. All communication is clearly identified as originating from a debt collector. This increases the sense of urgency for payment.
Collections agencies have varied techniques to extract payment from your delinquent accounts. Most agencies perform skip tracing, a favored method of tracking down businesses that are otherwise hard to find.
Compare Collection Agency Pricing
Debt Collection Sample Costs
Below are a few examples of price facts for collection recovery services which will give you an idea how how much you will pay for you purchase.
- Debt aged up to 3 months cost 20% to 50% of collected revenue.
- Uncollected revenue aged 3 – 6 months will require a fee of 30% – 60%.
- Any debt exceeding 12 months in age will most likely pay out a flat fee of about 5% on every dollar purchased and collection agency will retain 100% of whatever it can recover.
Find the Right Debt Collection Service
This is by no means a complete list. As you complete your research, look for discretion and positive results. References from lots of satisfied clients are always a good sign.
Because there are so many factors to determine the cost of debt collection, it pays to get several quotes from a range of companies. Look for companies that can locate your customers and protect your reputation.
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