Compare Debt Recovery and Collection Prices - BUYERS GUIDE 2018
What is a Collection Agency Service & How Much Does it Cost?
Collection agencies cost 20% - 50% of what is collected and the main indicator of the price is usually the age of the debt. Debt less than 90 days old is priced around 20% whereas older debt is billed at a higher rate. A collection agency service is a company or service provider that contacts consumers and clients with unpaid bills and attempts to collect on the debt, either directly through the customer or through lawsuits and court orders. From a business's perspective, collection agencies are a way to collect on bad debts without going through the hassle of tracking down, contacting, and sometimes suing debtors. The benefits of using a collection agency or a related service expend on the amount of debt your business is owed and the terms of the collection agency.
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How Collections Agencies Work
Some collection agencies purchase debt outright from the original creditor, which can be a quick way to get some cash for bad debt and clear your books, though the rates paid for such debt purchases tend to be relatively low. An arrangement where the collection agency or debt collector works on behalf of the original creditor and charges a smaller percentage of the amount retrieved is more common, and there are some services that charge flat fees or offer ongoing arrangements with monthly or annual fees, with or without variable charges based on the number of debts serviced and/or amount collected.
Again, the benefits of each arrangement depend on your debt collection needs, but simply put your collection agency will help you clear your bad debt while taking a cut of the debt payments they collect.
Obviously, the terms of the agreement each collection agency offers should be carefully scrutinized. You'll need to know the amount of bad debt you're carrying and who the debtors are, too—if you have many small debts owed, you'll want a collection service tailored to that situation, which will be markedly different from a service meant to handle a smaller volume of much larger debts. If you end up paying too much to make sure your customers and clients pay their debts, you'll be defeating the purpose of partnering with a collection agency in the first place.
What to Look For in a Debt Collector Agency
You should also make sure any collection agency you're considering working with has strong legal and ethical compliance guidelines in place, as well. There are strict federal and state laws that limit the way any debt collector can go about convincing people to pay up, and if an agency working on your behalf breaks those rules you can find your business in serious trouble. Research companies not only for their effectiveness when it comes to collecting debts, but for their ability to do so within the limits of the law. Most agencies will have complaints on consumer forums—no one likes getting a call from a debt collector—but multiple standing complaints with government agencies are a cause for concern.
Finally, make sure your internal debt tracking and reporting processes are robust, and that you're able to communicate your data quickly and clearly with your collection agency. As the initial creditor, the responsibility for all debt collection practices is yours, so partner with a collection service as concerned about your clients as you are.
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.
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Related Industry Terms: Recovery, Debt, Collection, Invoice, Billing, Bad Check, Purchase, Consumer, Business, Payments, Unpaid, Agency, Accounts Receivable