Collection agencies offer 3 types of debt recovery services. You can select any of these or use them one after another.
- Precollection / Collection Demands: A set of 5 letters cost about $15 per account. They are best suited for accounts that are less than 180 past due. Debtors make payments directly to you and there is no other cost regardless of the outstanding amount. It is a very effective approach to recover your money, yet a fairly low-cost solution. A highly recommended product usually comes with a minimum recovery guarantee as well. ( Sub-divided into “Step 1” and “Step 2” service depending on whether you want demands to go out with your name on it or the collection agency’s name).
- Collection Calls: These are more suitable for accounts over 180 days past due or have finished the collection letters service and remain unpaid. This service is contingency-based, and you get about 60% of the amount recovered. Agency keeps no more than 40%. (Also called the “Step 3” service). No recovery means No fees. Agency gets paid only if they collect.
- Legal Suit: This is the last resort. This step is only recommended if an account is still unpaid after numerous collection efforts and the balance is significantly higher. The contingency collection fee varies depending on the complexity of the case. (Also called the “Step 4” service)
- Commercial Recovery (B2B): Due to the level of effort involved, B2B collection fees are lower than B2C collection fees. B2B is a contingency-based collection service, costing between 20% to 40% of the amount recovered. You can check more about the Commercial Collection Agency services here. If you want to know the detailed difference between B2B and B2C collections, check our Consumer and commercial collection differences article. The following table will give you an estimate of B2B collection cost.
Commercial Contingency fee (Based on Account Age and Amount Assigned) Age > 1 year 40% 35% 30% 25% 180 days – 1 year 35% 30% 25% 20% 90-180 days 30% 25% 20% 15% < 90 days 25% 20% 15% 10% Amount Assigned $500-
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Collection agency cost for various services: Comparison
This applies to consumer collections. Most clients initiate the debt collections activity from “Step 2”.
|Stage||Collection Agency Cost ||Best for accounts age|
|Step 1 – Letters 1st Party (Pre-Collection) |
( 5 reminder letters sent on your name for each account. Account not in collections yet. Fixed Fees.)
| ||Between 30-60 days|
Step 2 – Letters 3rd Party
|Between 60-180 days|
Step 3 – Collection Calls
|No upfront fees, you get charged only when a collection agency recovers your money. Fees no more than 40% of the amount collected and you get a minimum 60% back.||After 180 days|
Step 4 – Legal
|Fee varies and communicated in advance ( Usually between 30% to 50%).||After all the above efforts have been exhausted|
Thumb Rule: Go for the better one. Not the cheapest one
Calculation Proof: Collection Agency “A” charges $15 and can collect $500. Collection Agency “B” charges $20 but can collect $750. Which one will you select?
>> Agency “B” <<
Recovered money that goes back into your pocket can be hundreds or thousands “more” when a better collection agency is involved. The charges of various collection agencies in the USA do not vary much, but performance does. It is undoubtedly better to stick with an agency with better collection rates than its peers, even if it charges a few extra dollars per account for fixed fee collections or even 10% more for contingency-based collections than other agencies. Some agencies genuinely charge more since their services are superior, or they invest more in their resources used for collections. Collection agency cost is a factor but not the most important one.
The location of a collection agency does not matter either; stop searching for a Collection Agency near you. It is important that the agency has good debt collectors, high recovery rates, and is licensed to recover money in your area.
Important considerations when shortlisting a Collections Agency:
- You can start collections from any above step, not necessarily “Step 1”.
- For the Fixed Fees service, ask if the agency offers any kind of guarantee on the recovery rate.
- What is their policy on the “expiration” of accounts purchased by you for the Fixed Fees service?
- Do they send collection letters in “Colored” or “Black and White” print? It is better to pay extra for colored print as they intensely impact the debtor.
- Can they send collection letters in both Spanish and English?
- Are the Scrubs performed, and if it includes Litigious debtor, Bankruptcy, or USPS Change of Address?
- If their entire operations are USA-based.
- Do they have an online portal where you can Submit accounts, View reports, and Pause Collections on a debtor if needed?.
- A larger collection agency does not necessarily mean that it’s better.
B2B collections that carry higher balances fall under the commercial collections category, where the contingency rates are much lower because they carry higher balances.
We at Nexa have shortlisted a few collection agencies based on their performance and experienced staff. Use our contact form to get connected with one of them. This is a free service.