Debt Recovery

Collection Agency Cost

Cost Summary:

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- $5k	$5k- $20k	$20k- $100k	$100K +

Contact us for a free consultation regarding these services. Serving Nationwide

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.)	10 accounts – $27 each 50 accounts – $17 each 100 accounts – $14 each 250 accounts – $13 each 500 accounts – $12 each 1000 accounts – $11 each 5000 accounts – $9 each ( More accounts you buy in a single lot, cost per account reduces.)	Between 30-60 days
Step 2 – Letters 3rd Party (5 collection demands are sent on Collection Agency’s name Fixed Fees. )		Between 60-180 days
Step 3 – Collection Calls (Contingency Based)	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.

Offering Debt Collections Service to Clients: Lets be 100% Honest

Honesty and patience reap betters results than being pushy when trying to sell your collections service to a prospective client. Let your prospective clients ask questions about your service before you explain your collection services to them.

1. Understand all services and believe in them:

The sales process requires a deep understanding of the product/service to a level where a Sales Agent believes in the product and is 100% confident that it will benefit his clients. He should understand which service is beneficial for which type of client, make recommendations, and then let clients select the service of their choice.

Observation: Working as a Sales Representative in a Collection Agency is a very challenging career. Most agencies offer only commission-based payout and no fixed salary component. Although most Sales Reps would love to have fewer very large clients which generate hefty commissions, this never happens for most Reps. The client portfolio of most Sales Reps consists of several small clients, a handful of medium-sized clients, and no large clients. Many Reps will change their career within a couple of months because they cannot make any meaningful money. Due to this sales pressure, a small portion of Reps indulges in presenting partial-truth information about the collection agency they represent.

Being a Sales Rep for a collection agency can be rewarding, but only over a period of time, and cracking that six-figure salary/commissions barrier will take years of hard work. Here are practical and honest tips for individuals looking to make a career in this field.

2. Be honest to your prospective client:

Let me give a few examples where a Sales Rep may not be very truthful for these questions are raised by a prospective client:

Q1) What are your collection rates?
A1) Our collection rates are the highest in the industry.
( Instead, reply with some real collection percentage numbers across various phases of service. Explain to him what results in higher collection rates.)

Q2) Are all your operations located in the USA?
A2) Yes
( Even if your corporate office is located in USA, but maybe your back office IT is located in India, or your call center or support staff is located in the Philippines then you just hid the facts.)

Q3) What guarantee do you offer?
A3) If we do not recover your investment, we will refund your money.
( That’s usually not 100% true, most agencies will return only a partial amount back and withhold any commissions that have been paid out to employees/staff, or there will be additional riders. Instead, tell them that the detailed guarantee terms are mentioned in the agreement.)

Q4) In which collection phase do you recommend I should submit my accounts?
A4) Collection calls – We don’t charge you till we collect.
(Suggest what is best for the clients and not what is good for your own commissions. If the age of debt is less, then suggest a lower fee, fixed fees collection letter service, and not the collection calls which are contingency based and result in a higher cost for the client.)

Check your company’s policy to answer such questions or consult your supervisor for all such questions.

3. Be patient – don’t be pushy:

Pushing hard to seal the deal in the very first call can be a huge mistake. It may work in a few cases, but in most cases, this approach fails. Give adequate opportunity to your client to let them ask as many questions as they like, explain your services clearly, then ask for a follow-up meeting to finally close the sales. Even though many Sales Managers will disagree with this approach, based on my experience, more deals are closed if you are more patient with a client versus when you are pressurizing.

Collection Letters, Calls or Legal Suit: Which is better?

When you approach a collection agency, you will be offered three types of services:
1. Collection Letters
2. Collection Calls
3. Legal suit

Selecting the right product is important, and it primarily depends on how old your debt is and how big is your average outstanding balance on unpaid accounts.

Kindly let me go a bit off-topic before discussing the main subject.

One thing is obvious if a debtor has not paid you within the first 30-60 days, then the likelihood that they will pay anymore is low.

These two-letter words “Collection Agency” have the same impact on debtors, like when you are driving and you see a police car parked ahead.

The moment you spot a cop, you suddenly check if you are wearing the seat belt or if the speed of your car is within limits, or for any other traffic violation. Similarly, a debtor knows that when a collection agency handles his unpaid bill, he gets a lot more serious, and the probability of getting paid suddenly increases. The debtor knows that a collection agency will employ several tactics to make him pay, may add a record on his credit history, or even file a legal suit.

Your strategy should be based on the number of days the debt has been past due.

Softer Collection: Fixed Fees based		Intensive Collections: Contingency Based
Step 1	Step 2	Step 3	Step 4
Contacts made on your name ( Letters + Auto-Calls)	Contacts made on agency’s name ( Letters)	Debt collector contacts the debtor multiple times on the phone. (Personal Calls)	Legal Suit filed on the debtor
Submit after 30 days past due	Submit after 60-120 days past due	Submit after 120 days past due.	After Step 3 or balance is high

The first two steps are Flat Fees Services ( I like flat fees services because they are so cost-efficient and the debtor pays you directly)

Step 1: Here, a collection agency sends five reminder notices under your business name ( there is no mention of a collection agency anywhere on it). Some agencies will combine two automated calls and 3 Letters instead of all five letters.

Step 2: Collection letters are sent under the collection agency’s name, notifying the debtor that this account has been transferred to a professional collections agency.

The next two steps are Contingency services (This becomes necessary when the account is 120 days past due. No fee is charged unless the agency recovers money.)

Step 3: A human “debt collector” will call the debtor ( usually multiple times) and insist that the debt must be paid off.

Step 4: A legal suit against the debtor is filed. Less than 2% of the total cases qualify for legal action.

Check this >> Cost of hiring a collection agency

When should you submit an account for Step 1: (Pre-Collections)

Use this service when you do not have enough staff or time to continue to follow up with debtors who have not paid after the first billing cycle has passed. The account is not in collections yet, and all communication uses your business name. This is also called pre-collections service, and accounts are purchased in advance.

You should assign an account for “Step 1” immediately when an account is 30 days past due. A collection agency will do some very important verification/background checks which you will not do. The most important at this stage is “Change of Address or Phone“. Collection agencies have ways to know the debtor’s latest address or new phone number.

Additionally, the letters they send are professionally crafted, and their intensity increases with each letter. They cost only about $15 per account ( each account = 5 contacts made to the debtor). Imagine, even if a single debtor pays you $1000, you would have recovered your entire investment with the agency.

In most cases, a collection agency can collect about 70% or more of all accounts assigned if accounts are assigned after 30-45 days. Your in-house staff cannot beat the cost $15 for five contacts. That’s about $3 per contact made.

When should you submit an account for Step 2: ( Collection Letters)

At this step, the account is in Collections, letters are sent out under Collection Agency’s name. The cost is the same as “Step 1”, about $15 per account.

If an account has completed the previous “Step 1” and remains unpaid, instruct your collection agency to transfer those accounts automatically to “Step 2”.

If you use “Step 2” directly, assign accounts once they are 60 to 120 days past due. The collection agency will also do a “Bankruptcy Scrub” to validate if the debtor is protected by court order, and no recovery attempts should be attempted.

Some agencies also perform a “Litigious Scrub” to check if the debtor has a history of filing back a lawsuit; in that case, collection actions are not recommended.

In most cases, a collection agency can collect about 50%-70% of all accounts assigned in “Step 2” if the debt is assigned in 60-120 days.

When should you submit an account for Step 3: (Collection Calls)

When a debt is over 120 days past due ( and in some cases 180 days past due in certain states) or the account has completed “Step 2”. There is no upfront cost; you do not need to buy any accounts.

Per your agreement, a collection agency will keep between 35-50% of the amount collected and remit you the remaining money. But, by this time, this amount is nearly “Impossible to collect” or ready to be “Written-off”.

Signing a “Settled in Full” agreement with your collection agency is recommended. It means if the debtor is not in a position to pay 100% of the amount owed but can make a payment of say 80% right away, give authority to your agency to waive off that 20% balance. There is no point in risking the entire amount if 80% can be collected immediately.

When should you submit an account for Step 4: (Legal Suit)

After previous steps are completed, a collection agency will suggest to you if a legal suit is advisable or not. This depends on many parameters, including the age of the debt, how big the debt is and a few other factors beyond this article’s scope.

If you are looking for a collection agency, fill out our “contact us” form, and we will connect you to a good agency to fit your needs.

In-house Recovery vs. Collection Agency: Cost Comparison

After an account has been past due for more than 60-90 days, sending additional reminder invoices or making in-house calls are hardly successful. If someone has not paid after 2-3 billing cycles, then they not pay you any time soon. At that point, engaging a Collections Agency is far more practical, economical and effective than continuing to pursue in-house recovery efforts.

Sterling Commerce found that the cost of paper-based invoices, on average is, $30 per invoice to process (once you include all in-house overheads).
https://www.industryweek.com/blog/cost-paper-based-invoicingAccording to “David O. Willis” in his book “Business Basics for Dentists”:
Estimates have put the total cost of sending a single bill at $16.00.

Collection agencies take collection activity to a completely different level

For every account, they ensure:
• All federal and state regulations are followed.
• Ability to tackle every excuse that a debtor throws at them.
• Free Bankruptcy screening.
• Free Credit Bureau reporting.
• Free Change of Address Check
• Litigious defaulter check.

Let us compare in-house recovery costs with two primary services that a Collection Agency offers

a) Collection Letters:
In the collection letters service, all communication happens by sending written demand notices to the debtor (sometimes mixed with automated collection calls).

b) Collection Calls:
In the Collection Calls service, a professional debt collector personally calls the debtor several times.

In-house Invoices vs. Collection Agency Letters:

Do you think collection agencies make a lot of money by sending collection letters?
No, not much !! Collection letters have a razor-thin margin, therefore not all agencies offer this service.

Advantage #1
The cost of sending these demands are far lower when engaging a collection agency:

Based on various estimates, engaging your in-house staff to send a single invoice ranges between $16 to $30 when all costs are included.

All Costs? Factor in your in-house staff time & salary, stationery, printing, mailing, equipment, utility costs, errors, software, office space, etc. Yes, these costs add up quickly, just that we do not realize it. Even if your in-house staff is ultra-efficient, still sending five contacts per account means you are looking at a minimum expense of $50 per account. In most cases, it will be much higher.

Any agency charging $20 or less for an account ( 1 account = 5 letter demands) is a great deal for you. In fact, the cost falls to almost $12 an account when a large batch of accounts are purchased.

# Advantage – 2
A collection agency sends five contacts on your behalf. It will also include Scrubs like “Change of Address” and “Bankruptcy Scrub”, which your internal staff will not do. Your employees cannot access any such scrub services; it will cost extra.

# Advantage – 3
The involvement of a Collection Agency puts more pressure on the debtor than when contacts are made by the in-house staff using your business name. The chances of getting paid become quite good.

# Advantage – 4
These are attorney-approved collection letters, not something your internal staff has made themself. They contain just the right balance of diplomatic verbiage and legal pressure.

In-house Reminder Calls vs Professional Collector Phone Calls

A professional debt collector whose entire day goes into talking to debtors has too many techniques and tricks to recover the debt than a typical in-house employee.

But, in-house collections have a unique advantage – An in-house employee can request the debtor to make payment by calling them just after the payment is due. However, a debt collector must give a 30-day dispute period to an individual debtor after the first demand is made.

Therefore it is best to transfer an account for the Collection Calls service when an account has remained unpaid for over 90 days or if it has already gone through the previous process of sending Collection Letters.

A debtor who has not paid you for 90 days will likely not pay you unless he hears from a professional debt collector.

Conclusion

Collection agencies have their own overheads, like licensing costs, insurance & bonding cost, staff salary, contractor commissions, costs of running website/software, performing scrubs and more.

Collection agencies can provide cheaper services due to their high volume. A professional collection agency has a far more efficient approach and a better strategy to recover money. Outsourcing collections also lowers your staffing cost and debt recovery training costs.

Therefore, let your collection agency handle what it is best at – Collections!

Some businesses do not feel comfortable sharing their customer data with an agency. However, most collection agencies have adequate safety and encryption procedures to protect your debtors’ data.

Bottom line, if an account has been over 30-120 days past due and your in-house calls/invoicing approach has not been able to recover the money, consider assigning that account to a collection agency before it gets too late. A collection agency can provide services starting from 1st party demands, switching to 3rd party demands, and finally making collection calls. They will even file a Legal Suit if needed.

Banks, credit card companies, car dealerships, doctors, gyms, US government, and small business owners from all across the board have been using collection agencies for decades now. This is a proven model for recovering past due accounts. Therefore one should not hesitate to hire a debt collection agency.

How to make a Perfect Collection Call?

According to the annual CFPB 2017 report, there were 130,000 people employed by 6,000 collection agencies in the “13.7 billion dollar industry”. Although the base salary of a debt collector is low (or none), he (or she) can earn a lot in commissions based on the amount of debt he collects. In this article, we assume that the reader of this article (you) is a debt collector.

Related article: Top debtor excuses and how to handle them

This is a fairly long and comprehensive article. We have attempted to make it as informative as possible.

Best case scenario:
Some individuals did not pay because they simply did not realize the seriousness of not paying the bill till they heard from a debt collector, or they had simply forgotten to clear the dues. This happens more often than you would think. Lucky for you, such cases can often be cleared amicably in a single call.

1. Prerequisites

a) Prepare your mind:
Before making a collections call, ensure you are fully relaxed, regardless of how bad your last collections call was. Tell yourself, “I will remain calm during this call, no matter what“. Let’s agree that a collections call from a debt collector is the last thing anyone wants to receive on any given day. About half of the debtors (or less) will talk to you properly, others will give you excuses, and some may even be nasty or abusive. Do not let any of this impact you. It’s a part of your job. Laugh it off after the call is over. The debtors need to understand that you are calling to work with them, not against them.

No checking Facebook, WhatsApp, Instagram, News or Sports during the call. Keep your cell phone aside and avoid surfing the internet. Stay focused and Listen carefully.

b) Yes, some debtors owe nothing. Your data could be incorrect or outdated:
Accept it, there is a possibility that the debtor might have already paid the debt, just that you are unaware of it or your corporate system is not up to date. In such cases, take whatever payment proof the debtor can provide and end the call nicely. Get the payment proof validated.

Collection calls are commission-based. The collection agency gets paid only when the debtor makes a payment. The debtors are ideally required to pay the collection agency directly, and then the agency remits the amount back to their clients after deducting their collection fees. Occasionally, debtors pay directly to the clients; in this case, the clients must pay the collection fees back to the agency. Your client could have just forgotten to inform you guys about this payment. Rarely, but you may come across some sneaky clients who intentionally do not tell you about the amount they have received, hoping to avoid paying your collections fees.

And lastly, it is possible that the person does not owe the debt or is protected since he is legally bankrupt. The debt could also be past the Statute of Limitations (SOL). Clarify your company’s policy when handling such accounts.

c) Inaccurate billing by clients:
Inaccurate billing and overcharging is other big complaint from debtors. This is particularly common in the insurance industry and phone and cable companies. These clients generally have no problem paying off the debt, provided the bill is fixed per their understanding. Listen to the debtor. If he sounds genuine and the difference is large, then discuss the matter with your supervisor after the call for a further course of action. At times, the debtor owes a lower amount or nothing.

d) Be Professional, Confident, and Somewhat Authoritative:

Imagine the debtor is sitting in front of you. Your attitude should be somewhat similar to a recruiter. Personally, whenever I have taken a job interview, I tend to be in my best behavior, and act professionally yet authoritatively.

Be polite, a debt collector does not have the option to get angry. He should also avoid using any “Sense of humor” during the call. Something may be funny for you but may be offensive to the debtor. It is a good practice to keep a smile on your face while making these collection calls. It helps to maintain a positive attitude. Never eat or drink during the call.

e) Compliance:

Be aware of the FDCPA laws (Fair Debt Collection Practices Act) and other applicable state laws. Never cross those limits. Other laws like HIPAA or TPCA may also apply.

f) Review all the documents that you have before the call:

Scanning the related documents once you are on the phone with the debtor will look unprofessional and unprepared. Here is some minimum information you should have before making the call.
* Exact amount owed
* What services and products were sold, and on what date?
* Date when the payment was due.
* Payment terms and any other supporting documents.
* A summary of previous communication between your client and your collection agency.
* If any payment has been made so far.
* Are you permitted to settle the debt for a lower amount?

Many debtors crosscheck the information a debt collector has about the debt to fend off the collector. But if within the first 30 seconds the debtor strongly feels that the collector must have sufficient information about the debt, he will likely not go into further details, the tide will quickly turn from interrogation to how the debtor is going to pay.

g) Maximum time for the call:
Do you want to spend the same time collecting on a debt that is $100 vs which is $1000, probably No? You do not want to spend too much of your and the company’s time on a small debt. If the collection call on a lower outstanding debt happens to go for a longer time than anticipated, and it is still unclear whether the call is going productive or not, try to get the debtor back from auxiliary discussions or end the call nicely, and possibly call the client at a later time. Try to keep your call short but effective.

2. Starting the call – First thing first:

a) Are you talking to the right person:

By law, you are not allowed to discuss collection matters with anyone other than the debtor himself (or the co-signer of the debt if the debtor is unreachable/unable to pay). This is also called the No-Third party disclosure law. Ensure that it’s the right person on the other side. Some debt collectors verify customers by checking their last four digits of SSN or address. Start your call by speaking clearly and confidently, neither too loud nor too soft.

b) If someone else picks the call:
If the person on the phone does not know the debtor, then the debtor’s contact information may have changed. You may need to do an advanced Skip Tracing to locate the debtor.

If this other person asks what you are calling about, you can simply say it’s regarding some business matter. In case it’s the debtor’s correct number, just that he is not available at the moment, you can either call at a later time or politely leave a message with your name and number and request them to pass it to the right person.

c) Landline or Cell Phone
It is always beneficial to be aware if you call on the debtor’s landline, cell phone, or work phone. FDCPA Collection laws are more strict when calling on the cell phone. In some states calling on the cell phone is prohibited by default, unless the debtor has permitted you.

d) Voicemail
You can leave a voicemail but do not mention that the call is regarding a past-due bill because if it is a shared voicemail box, then you can potentially disclose the debt to an unrelated person and violate FDCPA. Leave your name and number and request the debtor to call you back.

Good morning, my name is [ your name]. We have an important message from [company name] for [Mr. John Doe]. Please call [company’s telephone number] and mention the reference number [***xyz] when you call us back.

3. Your collection call starts now:

a) Address the debtor by his First Name, and avoid using words like “Sir / Mam / Bro/ Buddy / Sis”.

b) Tell the debtor that this is an attempt to collect a debt. Any information obtained will be used for collection purposes only. Some debt collectors record collection calls.

You must legally disclose that you are a debt collector and calling regarding an unpaid bill.

A little off the topic – These states require All-Party Consent if the call is recorded. (Washington, Pennsylvania, New Hampshire, Nevada, Montana, Michigan, Massachusetts, Maryland, Illinois, Florida and California.) This list could have changed by now, but overall your agency will make you aware of their call recording procedures and/or if you need to ask the debtor’s permission before recording the call.

c) Then you let them know who your client is, and from whom you got the actual debt ( the original creditor).

d) Make them aware that the client has legally authorized your collection agency to collect the debt on their behalf.

e) Then, immediately, ask the debtor how they would like to pay. Most collection agencies will accept payment over the phone. Get ready for all kinds of debtor excuses. Most likely, the debtor will tell you the reason for non-payment, but if they do not, ask them.

f) If you end the call without getting a payment or without a commitment to the payment date/amount, that call has been wasted.

g) Sound serious about getting the payment. If you do not show seriousness and haste, the debtor won’t get serious either.

h) You can indirectly have the debtor accept the debt by asking, “Do you have any more questions regarding this debt?”

i) If the debtor says that he will make payment at a later date, then immediately ask him it will be by Check, Credit Card over the phone, Money order, (or other options like Western Union). Most debtors reply that they will mail a check and ask which Bank/Credit Union they will use. All this will reflect how serious you are about paying the bill off. If the debtor demands a return envelope to make the payment, confirm their latest mailing address. In fact, sending a payment envelope is encouraged as an additional payment reminder.

j) If the debtors say they do not have money now, ask them when they will get their salary. Tell them to remit the following day and if they can call you to confirm when the payment has been sent. Besides asking open-ended questions to get as much information as possible from the customer. to nail down a commitment eventually.

k) Many debtors will start explaining their financial hardships, although they may be correct but do not fall for those and yet do not appear indifferent. Take a middle route – “I understand why you are feeling this way“.

l) Try to finalize the payment arrangements. If the debtor cannot pay a lump sum, then offer them to pay in installments. “To prevent you from going further into the debt, I can offer you to make payment in installments“.

m) If the debtor is unreasonably aggressive or angry, ask them, “It appears that have called you at a wrong time. When will be a good time to call you again.”

n) Take short notes, so you can recall what happened during the call. It will also help you to pinpoint if the debtor changes his story in the next call. Before the call ends, let the debtor know you have taken notes from this call. All this conveys your seriousness in collecting the debt.

o) Give a short pause after your questions, especially when you ask for the payment arrangements, and allow the debtor to speak. Short silences are a powerful tool in debt collections; they will likely spill vital information.

p) Debtors may get angry, emotional, embarrassed, and even yell at you. Remember to stay calm and focused. Over time you will get immune to all these things. But, you can never threaten a customer. Making false statements like “You can go to jail” or “We know how to get money out of people like you” is completely prohibited.

q) If the debtor is unwilling to pay at all, politely let him know the consequences of not paying the debt, including entry of this unpaid bill on his credit history.

Read your company’s policy before telling the debtor that “this account may be transferred to the legal team” is acceptable or not. If debtors feel they are about to get sued, they will also contact a lawyer making your collection efforts even harder.

r) The debtor has the right to tell you never to call him. He can also tell you to perform all collection activities in writing rather than a phone call. These are his legal rights.

s) Lastly, if the collection call is unfavorable, try to end the call rather than hanging up intelligently. This will help avoid making matters worse.

4. After the call ends:

a) Finalize/formalize your notes from the call, including dates on which the debtor has agreed to send money.

b) Most debt collectors become better over time. Do not hesitate to ask your co-workers (collectors) how they would have tackled a situation that you could not handle well during the call.

c) If you unfortunately/mistakenly violated any collection laws or yelled back on the debtor, make your supervisor aware immediately before the situation worsens. Any unfortunate/critical situation should be documented and communicated to your supervisor immediately.

d) Tell yourself to contact the debtor on the date on which you agreed to talk again or when the payment is supposed to be made. Regular follow-ups will maintain the pressure on him.

5. Debtor’s Legal rights:

a) Beware, the debtors are more aware of their legal rights than ever. There is an unlimited supply of articles and videos telling the debtor how to escape from making payments. Many of these videos provide valid information but more often than you think, these videos go overboard and end up providing misinformation. People posting these videos are often not even associated with the collections industry or lawyers. Their experience and suggestions may not fully fit with the debtor’s situation. They often arm themself with this misinformation and argue with you unnecessarily.

Even the state collection laws vary largely by state, which these videos do not discuss. Many people post these misguided videos just to make money out of advertisements, nothing else. So yes, there is pretty good information online regarding the debtor’s rights, but there is an equal amount of incomplete/misinformation out there that a debtor may not realize.

Then some lawyers make a living by filing lawsuits against the collection agencies. Many debtors are so loaded up with information (and misinformation) that they may start sounding attorneys themselves.

b) According to consumerfinance.gov, the debtor has the legal right to ask you these things:

* Identity of the debt collector, including name, address, and phone number
* The amount of the debt, including any fees such as interest or collection costs
* What the debt is for and when the debt was incurred
* The name of the original creditor
* Information about whether you or someone else may owe the debt

The debtor can also tell over the phone or send the collection agency in writing:

* I do not owe this debt.
* I need more information about this debt.
* I want the debt collector to stop contacting me.
* I want the debt collector only to contact me through my lawyer.
* I want to specify how the debt collector can contact me.
* Dispute the debt itself within 30 days of the first contact.

A debt collector needs to be flexible and handle situations smartly and diplomatically. A collections call is never easy. There is no magic wand to collect a debt.

The information presented here is not a piece of legal advice or something which fits all situations. There are way too many situations and laws beyond what has been covered above. A large portion of this article is based on my co-workers’ feedback during my last 20 years in the collections industry.

We would appreciate your feedback on this article and how to enhance it further.

References:
https://www.consumerfinance.gov/ask-cfpb/what-should-i-do-when-a-debt-collector-contacts-me-en-1695/

Collection Lawyer or Collection Agency – Who is Better?

Selecting between a Debt Collection Lawyer and a Collection Agency is often confusing.

In short, it all depends on how much pressure you want to put on your debtors:
( Just for illustration purpose – A Collection Lawyer has the biggest hammer among all choices)

Collection Type	Hammer Size
Written demands of a Collection agency:	🔨
Recovery Calls made by a Collection Agency:	🔨
Court Summons of a Lawyer:	🔨

Using the biggest hammer may be needed in many cases, but in our opinion, it is better to go with the smallest hammer and gradually increase pressure.

There are many scenarios where selection is rather straightforward; in other cases, it is a matter of personal preference and the case’s complexity. Interestingly, many clients use both entities, starting with the Collection Agency first and Collection Lawyer later.

A Collection Lawyer can be too intensive for most debt collection efforts. If you do not care much about the relationship with the debtor, go for it.

Collection Agency takes a more amicable approach, starting with its Collection Letters service. The intensity increases in the next step i.e. the Collection Calls service. Eventually, the intensity matches that of a Collection Lawyer when the case reaches the Legal Suit service. The possibility of retaining good relations with your consumer/customer is higher when a collection agency is involved.

Let’s briefly understand how both these entities work:

Collection Agencies:

Most Collection Agencies offer these services: Collection Letters, Collection Calls and Legal Collections.

Collection Letters: An agency will send five collection letters on “their own letterhead” asking the debtors to pay. The verbiage on each letter becomes more and more intensive with every passing letter. These letters firmly explain to the debtors the consequences of ignoring their payment requests diplomatically.

This set of 5 letters costs between $10-$20 per account. Payment for Collection Letters is made upfront, regardless the debtor pays or not. If the debtor pays the outstanding debt, you get all that money, and the collection agency does not charge anything extra.

Collection Calls: A debt collector calls the debtor personally and asks him to pay, maybe in installments. The debt collector may even settle the debt for a slightly lower amount with your (creditor) permission. The Agency charges a contingency fee for the Collection Calls service, which means they will only get paid if some amount is collected. If they do not recover anything, nothing is charged. Typically agencies keep 25% to 50% as their commission.

Legal Collections: A lawsuit is filed against the debtor, and the contingency fee is disclosed in advance. Collection Agencies rarely have their in-house lawyers. They transfer your case to one of the local Collection Attorney firms with whom they have a tie-up.

Collection Lawyers:

Unlike the “one size fits all” approach that the Collection Agencies follow, Collection Lawyers take a very different approach. Once they study your case, they will give you a preliminary estimate. Their fees will vary based on how difficult it is to collect the debt. Collection lawyers are usually more expensive than Collection Agencies.

A debt that is harder and more complex to collect will require a higher upfront fee and a lower contingency fee.
Depending on the amount of outstanding debt, they will charge a lower commission on large debts (around 10% on a $50,000 debt), and a higher commission on smaller debts (around 50% for debts around $1000). There will be additional costs like Court Costs, Attorney Suit fees, Per Hour Fees, etc., which vary in each case.
For the older debts (over 1-year-old) , they charge a higher fee as they are harder to collect.

People often engage a Collection Agency first, and they will approach a Collection Lawyer if the debt is still uncollected. Some Lawyers also offer Written Demands services like the Collection Agencies before filing a legal suit for collecting money.

Back to the priceless question, how to select?

1. Is the amount of debt more than $10,000 or Less than $10,000?

Hiring a Collection Attorney for outstanding amounts less than $1000 makes very little sense. For smaller debts, go for a Collection Agency and select their Collection Letters and Collection Calls service. If the amount is still outstanding, ask the Agency to give you an estimate for doing Legal Collections. You can further compare it with Collection Attorneys in your area.

For amounts between $1,000-$10,000, you can go either way. A lot depends on the circumstances of the case and your personal choice. I prefer to go with a Collection Agency for all debts under $10,000.

For an AR of more than $10,000, it is better to go to a Collection Lawyer, provided you are comfortable pursuing a lawsuit against the debtor.

2. Do you want to take legal action against your client?

As mentioned earlier, Collection Agencies offer services that are one size fit all kind of approach. Therefore their costs are lower than Attorneys who take each case individually.

Most debtors take Collection Letters MODERATELY/SERIOUSLY, Collection calls VERY SERIOUSLY and Legal notices from an attorney EXTREMELY/MOST SERIOUSLY. Often a communication sent from an attorney may be all that’s necessary to collect the debt without even proceeding with legal action.

For hard-to-collect accounts with higher balances, you should consider taking legal action directly. But, if you do not want to take the matter to the courts, then it is better to stick with a Collection Agency. Many creditors avoid Collection Attorneys because of the negative image that is associated with using legal action.

3. Do you think your debt is very hard to collect?

For hard-to-collect debt, go with an Attorney. If you are not sure, then stick with a Collection Agency.

4. No Recovery, No Charge

Attorney and Collection Agency both offer a “No Recovery, No Charge” service. If they are unsuccessful in collections, you lose nothing. If you do not want to spend money, this is the way to go. Give preference to a Collection Agency.

5. Does the Agency/Lawyer have an industry-specific specialty:

Some Collection Agencies and Collection Lawyers specialize in a particular industry. Ex Healthcare, Car Dealers, Tenants, or Student loans. These Collection Agencies and Lawyers should be given serious consideration.

6. Forcing the debtor to pay:

If a debtor has $100K sitting in his bank account, and yet he is not paying up a debt of 10K. Only a court order can force him to clear your bill. This is where a Collection Attorney has a clear advantage over a Collection Agency. Attorneys may further get court orders to garnish the debtor’s wages. A collection agency cannot force a debtor to pay (With Collection Letters and Calls) unless they too go for the Legal option. Filing a lawsuit is the most powerful step to recovering money from debtors.

Most lawyers are affiliated with the Commercial Law League of America (CLLA), the International Association of Commercial Collectors (IACC), or at narca.org.

7. Still want to maintain a good relationship with your patient/debtor?
Diplomatic letters offered by collection agencies are a great way not to break your debtor’s relationship. A lawyer’s letter/call/notice is almost always taken negatively but very seriously.

8. Who collects faster?
The model of a Collection Agency is designed to act fast and in bulk. A collection lawyer will likely act slower than a Collection Agency.

Conclusion:

Since Collection Agencies have a one size fits all approach, they are cheaper. This is also why Agencies can work on such a large number of cases at a time.

Collection Attorneys have a nearly 100% customized approach for your case; hence they are more expensive. Debtors take legal actions much more seriously. Always check their BBB ratings if available (or on bbb.org).