Debt Recovery

The US government has thrown several laws on collection agencies, making bad-debt recovery harder and costlier. Lower recoveries mean, low recoveries and extensive loss for businesses and doctors. Our government’s intention behind these laws is not wrong, but the ground reality is different. 

Extra costs to comply with these laws would be passed on to businesses /creditors unwilling to pay the current expenses of hiring a professional debt collector.

There are thousands of collection agencies in the USA, but most are small. They have less than ten people and work from small offices. The following changes can result in many collection agencies shutting their businesses. 

New Regulations

1. As per FTC, starting June 9, 2023, all collection agencies will be treated as financial institutions. This means all collection agencies must secure consumer data nearly the same way as banks.
   Read: Impact of the GLBA on Collection Agencies
   
   
2. As of Nov 2021, The new debt validation notice format recommended by CFPB makes it easier for debtors to dispute the authenticity of debt. Debtors who would have usually paid quickly are now disputing the collection notices more than ever. All these delays and extra paperwork means higher cost, lower recovery, and more time to recover debts.
   Read this: https://nexacollect.com/debt-recovery/validation-letter/
   
   
3. In another CFPB order, all collection agencies must provide the balance as of a specific date and itemize all interest, fees, payments and adjustments from that date. Not all clients have this information handy. Many clients would take the loss upfront rather than wasting time digging into all the detailed documentation required to submit an account for collections. 
4. The government and even credit bureaus are creating roadblocks for hospitals, doctors and dentists, who rely on collection agencies and credit bureau reporting for medical debt recovery. Credit bureaus will soon stop reporting medical debts lower than $500, remove medical line items that have been fully paid, and collection agencies now have to wait one year before medical debts can be reported. Suppressing how medical reports are reported to the credit bureaus will surely increase the cost of healthcare, more defaults, more legal mess, and higher risk for future creditors.
   Read: Making Medical Credit Reporting Harder is a Disaster in the Making

These laws are on top of all the existing Federal and State laws. These include FDCPA, TCPA, HIPAA, FCRA, and many more.

These laws can have a positive perception of people on lawmakers, but as usual, it is making doing business harder than ever.

When you’re short-staffed, unpaid invoices are the first thing to slip.

No one is hired just to chase money. The people you already have are busy keeping customers happy, answering phones, scheduling jobs, and putting out fires.

Meanwhile:

• Most businesses are regularly paid after the due date

• A big chunk of revenue often sits in the 60–90–120+ day bucket

• Teams spend hours every week “circling back” on overdue invoices

If you’re short on people, you simply don’t have those hours. So AR becomes a someday project, and “someday” rarely comes.

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When you factor in salary, benefits, taxes and overhead, those “just 30 minutes a day” quickly add up to $30–$40+ per hour of fully loaded cost—hundreds of dollars a month—for an employee who lacks skip-tracing tools, bankruptcy screening, or knowledge of collection laws, and who usually has zero interest in acting as a part-time debt collector. In the end you’re paying a premium rate for slow, risky, and uncomfortable collections work that a specialized agency can do faster, safer, and purely on results.

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The core issue: nobody truly “owns” collections

In a short-staffed operation, AR is treated like background noise:

• “We’ll call them after this busy week.”

• “Let’s get caught up on service first.”

• “We’ll tackle aging invoices next month.”

That next month never arrives.

The real problem isn’t bad customers; it’s lack of ownership and consistency:

• No one’s job is to be methodical about follow-up

• Nobody has proper training in handling excuses and pushback

• There’s no clear point where “late” becomes “collections”

So debts quietly age until they’re no longer worth the fight.

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The hidden cost of “we’ll just hire someone”

On paper, hiring an in-house AR/collections person feels like the natural solution.

In reality, it’s expensive:

• Salary (often tens of thousands a year)

• Benefits, payroll taxes, software, workspace, training

• Manager time to supervise, review, and replace if they leave

And collections work isn’t steady:

• Some months they’re slammed

• Other months there’s not enough work to justify the cost

• If they’re mediocre, you pay a full salary for half the results

For a short-staffed business, that’s a heavy, permanent cost for a problem that’s irregular and spiky.

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Why DIY collections rarely work well

Most businesses try to “share the load” internally:

• The receptionist makes a few calls

• The office manager sends some reminder emails

• Someone in accounting tries to chase old invoices on Fridays

Common outcomes:

• Awkward conversations – staff are afraid to be firm with customers they know

• Inconsistent follow-up – two calls… then nothing for 6 weeks

• No structure – every debtor is handled differently, depending on who picked up the file

• Legal risk – nobody is trained on collection laws, call-time limits, or what you can and can’t say

On paper, DIY collections look cheap.
In practice, they’re slow, stressful, and lead to a lot of quiet write-offs.

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Why outsourcing is often cheaper than “doing it ourselves”

A professional collection agency is usually contingency-based:

• If they don’t recover, you don’t pay a fee

• If they do recover, you share a percentage of the money collected

Compare that to a full-time salary, benefits, and overhead—paid every month, whether or not your AR actually improves.

For a short-staffed team, outsourcing means:

• No fixed payroll cost for collections

• No training, turnover, or management headaches

• Staff stay focused on work that actually generates new revenue

You’re effectively trading “unpredictable write-offs and staff time” for “a predictable share of money you probably weren’t going to collect anyway.”

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A four-step collection process that fits into your existing workflow

The fear with agencies is that they’ll be too harsh and damage relationships. A good one works in measured steps, not with a sledgehammer.

Think of it as a four-step ladder.

Step 1 – Gentle, branded reminders

This is the “soft touch” phase:

• Professional letters or emails mentioning your company

• Clear summaries of what’s owed and how to pay

• A friendly, “we need to get this squared away” tone

This alone cleans up a surprising number of accounts—people who simply forgot or misplaced the invoice.

Step 2 – Polite, persistent live contact

For those who ignore written reminders, the agency begins live outreach:

• Calls and, where allowed, text or email

• Trained collectors who spend all day handling excuses and delays

• Calm but persistent follow-up at different times of day

The tone is still respectful. The goal is to confirm the debt and get a realistic plan in place, not to threaten.

Step 3 – Deeper recovery tools

For tougher cases:

• Skip tracing to find new addresses or phone numbers

• Checking whether the debtor can realistically pay

• Offering structured payment plans or, when appropriate, settlements

Here, experience matters. Collectors know when to push, when to listen, and when a partial recovery is better than adding another year to your aging report.

Step 4 – Legal and credit escalation (for the few that need it)

A small percentage of accounts are simply refusing to pay. For those:

• Formal attorney letters or legal action may be considered (usually for larger balances)

• Where allowed and appropriate, accounts may be reported to credit bureaus

By the time an account reaches this stage, every softer option has been tried. This step is for won’t-pay, not can’t-pay, situations.

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How this helps a short-staffed team in real life

The real win isn’t just more recovered money—it’s clarity and relief.

You set simple rules, such as:

• “Send accounts to Step 1 at 45 or 60 days past due.”

• “Move to live contact at 90 days if there’s still no payment.”

• “Only place accounts over $X, except for periodic cleanups of small, very old balances.”

After that:

• Your team continues to serve customers and run the business

• The agency handles the persistence, structure, and legal nuance

• Money that used to quietly die in the 90–120+ day column starts coming back in

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The bottom line

Being short-staffed isn’t just a staffing problem—it’s a cash problem when overdue invoices are allowed to pile up.

You can:

• Ignore them and write off more every year

• Keep trying to squeeze collections into already overloaded roles

• Or plug in a four-step outsourced process that’s persistent, reputation-conscious, and paid for out of money you weren’t collecting anyway

If “we’re too short-staffed to chase AR” sounds familiar, that’s exactly why a structured, outsourced collections process isn’t an extra expense—it’s the missing piece in your revenue strategy.

As per FTC, starting June 9, 2023 all collection agencies will be treated as financial institutions. This means all collection agencies must secure consumer data nearly the same way as banks.

Failure to comply with GLBA can have severe consequences for the collection agency, especially the owners and the higher management. Each violation can result in fines up to $100,000 and may extend to criminal penalties, including jail time. We will try to cover only the important parts of GLBA per our understanding.

GLBA covers your employees and even your vendors that have access to your customer and debtor data. This includes your collection letter printing vendor, your software providers that access your data, and even your Sales Representatives.  Any data access outside your company network must be secured through the VPN and their laptops should be encrypted.

If your associates can access emails through their cell-phone, you must evaluate if their emails can potentially have sensitive data and take appropriate steps to secure their mailbox or completely disable mobile access to these emails.  The GLBA Privacy Rule only applies to nonpublic personal information (NPI), including (Debtor) Name, Address, Income, Social Security number. Transaction information such as account numbers, payment history, loan balances and information from court records or consumer reports.

After the recent changes done by CFPB and these upcoming GLBA laws will result in significant operational challenges and cost additions for all collection agencies in America.

When consumers turn to a financial institution for services, they want to know that their private information is being kept safe and sound. None of us want our information shared with companies we do not approve of. The Gramm-Leach-Bliley Act (GLBA) is a law that was enacted with this desire for security and privacy in mind. The act was passed in 1999 to protect consumers’ private information within financial institutions and give them the power to choose what happens with that personal information.

What Types of Businesses Are Impacted by the Gramm-Leach-Bliley Act?

The GLBA covers any institutions that provide financial services, including:

• Handling loans
• Handling savings
• Exchanging or transferring funds
• Providing financial advising
• Investing for others
• Career counseling (of those who are seeking employment with financial services)
• Collecting debt
• Banking
• Insurance
• Credit union

The law covers a wide variety of institutions that handle finances and can include institutions one may not expect, such as car dealerships that collect and distribute the personal information of their consumers or retailers that grant credit cards to their customers.

Protecting Your Customer’s Nonpublic Personal Information (NPI)

When a consumer decides to work with a specific financial institution, they must be able to trust that institution with their private information. Often, the information given to these institutions by their customers can be highly confidential and leave the customer vulnerable to a number of personal and legal issues should their information be shared or leaked to the wrong party.

Under the Gramm-Leach-Bliley Act, financial institutions are legally obligated to protect all of their private consumer’s nonpublic personal information (NPI). An NPI is defined as the individually identifiable financial information collected by a financial institution that cannot be found in the public domain. This can include information like:

• Address
• Income
• Social security numbers
• Payment history
• Account information
• Loan balances
• Purchase history
• Credit history
• Consumer reports

Under the GLBA, a financial institution must uphold and ensure the safety, security, and confidentiality of any information their customers have trusted them with. A financial institution must always have security measures in place to prevent security breaches and data leaks. In order to ensure this, the Federal Trade Commission (FTC) has the power to audit any financial institution at any time. Should the financial institution have a need to share the customer’s information with an outside party, the customer must be made aware of the ways in which their information will be shared and given a choice in whether they would like to “opt-in” or “opt-out.”

The Gramm-Leach-Bliley Act and Privacy Notices

Whether you are opting in to sharing your customer’s NPI or not, the GLBA requires every financial institution to provide their customers with a privacy notice before a customer-business relationship has been established. Should this cause issues with the timeliness of completing the customer’s transactions with your business, there is an exception to this rule- as long as the client agrees, you may provide the notice within a reasonable time frame after the relationship has already been established.

Along with a privacy notice, customers must have an option to opt-out of sharing their NPI with outside parties. This opt-out notice must emphasize that the customer has a right to opt out, give a sensible method of opting out, and grant the customer a reasonable time frame to opt-out. The customer must also be given a copy of the privacy notice annually for the duration of the business-customer relationship.

The FTC’s Recent Amendments to the Gramm-Leach-Bliley Act

The FTC has recently made a few amendments to the GLBA. Due to this, multiple changes will become effective on June 9, 2023, including:

• Risk assessments– financial institutions will now be required to maintain a formal risk management program that includes a written risk assessment
• Designation of a single responsible and qualified individual– while it has already been required that the financial institution has designated employees overseeing the security program, financial institutions must now appoint a qualified individual to hold the ultimate responsibility of the program.
• Employee training– this new requirement means financial institutions must ensure their staff have received proper security training from qualified personnel if they have access to private information like customer names, addresses, social security numbers, and date of birth. This training must be done regularly.
• Monitor own providers to whom data is outsourced or serviced– financial institutions must monitor and complete risk assessments regarding the third-party service providers they are deciding to work and share information with. It is the financial institution’s responsibility to ensure the third-party vendors they share information with have the proper security measures to continue protecting their customer’s NPI.
• Information Systems Monitoring & Penetration Testing– financial institutions must now regularly test and monitor their safeguards, systems, and procedures for any attempts at a security breach or weaknesses
• Incident plan– a new requirement of the GLBA is that financial institutions will now be required to have a written incident response plan that addresses seven particular topics- the goal of the plan, internal processes for a response, external and internal communication, requirements for identified weaknesses, how the security event will be documented and reported, and the changes and evaluations needed to the incident plan after the occurrence of a security event
• Specified security controls– There have now been security controls added as specific requirements to maintain GLBA compliance, including access controls, system inventory, encryption, secure software development, multi-factor authentication, data retention, change management, and system monitoring
• Accountability of the responsible and qualified individual– the individual who has been designated the responsible party is now required to annually report their security program’s status to the executive leaders of the financial institution in order to maintain a sense of accountability and the motivation to uphold the highest security measures for customers.

In Conclusion

The GLBA has been put in place to protect consumers’ personal information from falling into the wrong hands. It is the responsibility of financial institutions to have security measures in place to protect their consumers and themselves. Staying up to date on the newest GLBA requirements can be crucial to ensuring your financial institution is doing everything you can to maintain compliance.

References:

https://www.fdic.gov/consumers/consumer/alerts/glba.html#:~:text=GLBA%20became%20law%20in%201999,insurance%20companies%20and%20securities%20firms.

https://www.ftc.gov/business-guidance/resources/how-comply-privacy-consumer-financial-information-rule-gramm-leach-bliley-act

https://globalcerts.com/wp-content/uploads/Whitepaper-2022-GLBA-Amendments.pdf

Assigning accounts for collections roughly 60-90 days past due for a maximum recovery rate is recommended.

The recovery rate dips as the account gets old. The following chart demonstrates the relationship between the Account-age and Recovery-Rate.

Still, there are some industries where the average recovery rate is better than others.

Based on clients we came across last year (2021), here is the average recovery rate we have seen, along with our collection agency partner(s).

This is purely our own experience. No collection agency openly publishes the results they achieve by industry. But it should give an idea of what to expect.

Industry	Recovery Rate
Transportation	84.33%
Pool Services	73.67%
Cooperative	70.39%
Propane	66.40%
Fuel/Oil	61.25%
Snow Removal	60.39%
Lawn & Garden	59.87%
Printing	58.19%
Plumbing, Heating, Air	53.30%
Engineering	52.95%
Interior Design	52.90%
Mortgage	48.11%
Travel Agent	44.18%
Distribution	43.30%
Medical / Athena	42.46%
Construction	41.49%
Publishing	40.78%
Credit Unions	40.27%
Retail/Consumer Misc.	39.72%
Pest Control	38.95%
Auto Supply & Repair	38.02%
Restoration Companies	37.73%
Commercial	36.95% – 85%
Contractors, Special Trade	36.76%
Industrial	36.38%
Optometrists	36.27%
Dental	33.29%
Repair Services	31.59%
Waste Management	31.40%
Funeral Services	31.09%
Day Care	29.55%
Business Services	29.43%
Government	28.38%
Utilities	28.36%
Farm Supply	27.52%
Auto Dealers	27.04%
Fire	26.65%
Telephone Communications	25.48%
Member Organizations	25.13%
Elementary/ High School	24.59%
Personal Services	22.83%
Schools Misc.	22.78%
CPA / Accounting	22.16%
Security	21.63%
Trucking, Nonlocal	21.34%
Clothing	20.86%
High Tech	19.87%
Veterinarian	19.25%
Advertising	19.17%
Drug Store	19.11%
Aviation	19.07%
Medical Supplies	18.03%
Rentals, Equip, etc.	17.71%
Newspaper	17.48%
Non Profit	17.28%
Hotel	17.21%
Manufacturing	17.08%
Pharmaceutical	17.00%
Wholesale, Durable	16.94%
Social Services Misc.	16.66%
Insurance	15.38%
Real Estate Management	15.34%
Media	15.22%
Bank	14.93%
Computer Services	14.90%
Bail Bonds	13.97%
Nursing Homes	13.87%
Medical Other	12.94%
College/Univ/ Prof. School	12.08%
Gym/Sports Org	11.41%
Electronics	10.25%
Legal Services / Lawyers	9.94%
Cleaning Service	9.06%
Accounting	8.40%
Moving / Storage	8.32%
Chiropractor	8.26%
House Rent Collection	6.96%

Commercial accounts (B2B) have a better recovery rate than (B2C) accounts.

 

You can legally hire more than one collection agency at a time, provided you do not assign the same account to multiple collection agencies. If one debtor starts getting contacted by different agencies, you can be sued for harassment. 

However, hiring more than one collection agency will be very hard to manage. Keeping track of which accounts have been assigned to Collection Agency “A” and others to Collection Agency “B” is always confusing. Then each collection agency has its own way of recovering the debt. Two different client portals training will be required, and each agency will have separate ways and dates when they pay you or raise an invoice to bill you. Moreover, whenever a debtor calls you directly to make a payment or discuss something else about his debt, you will have to figure out which collection agency has the account of this debtor. It can be quite confusing. 

When does it make sense to hire two collection agencies?

1. Transitioning from Agency A to Agency B: You want to fire your existing collection agency “A” ( say you are unsatisfied with their collection results). Meanwhile, you start assigning all new accounts to this collection agency “B”. Eventually, all your accounts to your old collection agency “A” complete their collection lifecycle, and you are left only with the new collection agency “B”.
2. You are a large company with multiple offices across US. You also have hundreds or thousands of accounts that require collections every month. You decide to hire collection agency “A” for one set of offices and collection agency “B” for other offices. Both collection agencies will work hard to give you better results since you are such a large account for them. They will always have a fear of losing you.

Overall, we recommend that you hire only one collection agency that is licensed nationally. Do your due diligence to shortlist the best one.

Collection agencies typically offer two types of collection services to their clients. “Fixed Fee” and “Contingency Only” services.

In the Fixed fee service, a collection agency sends multiple written demands only.

In the Contingency service, one written debt validation notice is sent, followed by collection calls from an experienced debt collector.

Although the sales guy from the Collection Agency may attempt to sell you a “Fixed Fee” service that costs around $20 an account. Fixed fee may appear more beneficial after hearing all the sales pitch, however, it may not be the best service for you. The biggest advantage a collection agency gets is that the moment you buy their “Fixed Fee” service, they have made money from you even before a single account is placed for collections. 

Unless your accounts are less than 180 days past due, the “Fixed Fee” service may be of little help. After the collection agency fails to recover money for you in the “Fixed Fee” service, they will later insist that you should transfer accounts to the contingency service.

Why go for the “Contingency Only” service?

• No upfront fee is involved.
• A collection agency makes money only if they collect for you.
• Credit Bureau reporting is done for free by most agencies.
• Calls from a debt collector are more impactful than written demands. 
• Most agencies do USPS change of address checks only in Fixed fee service. They do not perform skip-tracing, a more accurate tool for locating the debtor and his phone number. In Contingency service, almost all collection agencies rely on skip tracing.
• A debt collector can negotiate payment terms even with those tricky debtors. For example, he may put the debtor in installments or settle the amount in one lump sum payment slightly lower than the original amount due.
• A debt validation letter is sent out anyway, even during the Contingency only service; therefore your debtor knows the account is with a collection agency. So you do get a considerable benefit from this written demand as well.
• A collection agency takes all the headaches involved in the negotiation and takes money from the debtor. In a fixed-fee service, you have to be the one to manage payment acceptance and negotiation. 
• You just have to notify the collection agency of any payments received from the debtors directly to you. Other than that, sit back, and you will receive the monthly checks for the amount collected.

When is the Fixed Fee service beneficial?

In our experience, it is a better service only if your accounts are no more than 180 days past due. If accounts are less than 120 days past due, it will most likely result in significant cost savings over contingency collections.

If you want less hassle-based recovery, go for Contingency Only collections.