Since I run a small business debt collection agency, I often get calls from prospective clients who are only interested in our rate and do not want any other information. It is frustrating to me because I believe that each client is different and the same rate should not always apply.
Like any business, a collection agency is started to make money. If your collection agency charges a rate that makes no profit, they will not be able to continue in business.
You get what you pay for. A contingency debt collection fee means that no money is paid upfront and the agency is compensated with a percentage of monies recovered. Rates can vary based on many factors: the aging of the debt, volume of accounts placed, or size of the file placed. The contingency fee (i.e, no fee until money is collected) should support the amount of activity that will be needed to recover the money owed. While we all certainly want to manage the overall cost of collection, a low rate is not always what it appears to be.
Years ago a prospective client, a dentist, told us that he had over 200 delinquent patient accounts and had made an arrangement with an agency that gave him a very low rate. After 18 months, the agency had recovered only $1,200 for him and told him that in order to proceed to “Stage 2 Collections”, a high rate would be needed. What good did the low rate do other than collect a few files that likely would have been paid anyway.
All contingency rates offered by collection agencies are not the same. Some rates are all inclusive, while others provide very basic services and add charges for activities that are essential for successful recovery. So, the low rate is not really low at all. For example, I once reviewed an collection agency agreement for a customer. His “low” rate did not apply to any file under $250.00 or any file that needed research (40-50% of collection files do). Legal fees were also not included in the rate. It turned out that the great rate he thought he had only applied to a third of his files. Never pay additional fees for research. It is part of what a debt collector does to get the job done, and should be included in the rate.
A contingent collection agency rate should require no upfront expense. The collection agency is has an incentive to work hard to recover bad debt as they receive no compensation at all if unsuccessful. The contingency fee should be structured to include all services necessary to get the job done.
There are many collection agencies to choose from, and finding an attractive contingency rate should be easy. If you are lucky to land a very low rate, watch to make sure you are getting the very best results from your collection agency. A low rate means nothing if the agency does not recover your money.
