The cost of debt collection is not the same as a debt collection fee.
A collection fee is either a flat dollar amount your collection agency pays per file sent for collection, or a contingency rate charged on any sums recovered.
The cost of debt collection could include other items such as legal fees, court costs, cost of liens and the like.
What both of these items do have in common is that they can be partially or often fully recovered if you take steps beforehand with a written contractual agreement. The customer or patient must be advised, and must agree in writing that they are responsible for any costs associated with referring a balance they owe you for outside collection.
Don’t have time or do not wish to have customers sign a contract? Well, then you cannot be angry if your agency tells you they cannot recover those costs. Your agency must follow the law, and the law requires a written agreement.
Another key difference if purely semantic. If you tell customers/patients they have to pay the collection agency fee, that is the kiss of death. No one wants to pay a collection agency! But if you state that they are responsible for your costs, all of them, if their file be placed for collection, then you have a much better argument, especially if your customer wants to do business with you again. Once again though, you must have it in writing!
There are other ways you can reduce the cost of debt collection.
The longer you hold off sending files to your collection agency, the higher rate they are going to charge you. Sure, try it on your own for 90 days or so, but if you have no results in 90 days, you need to bring in the experts.
Also, make sure the rate your collection agency is all inclusive. A low rate may look good, but what is the agency doing to recover your money? What is included in the rate, and what is extra? Be very careful that services such as research or “skip tracing” are not extra.
Do not forget that if you or your staff are spending too much time chasing delinquent customers instead of managing or growing your business, that is a soft cost of collection that you can easily remedy by hiring a collection agency.
