Debt Recovery

In-house Recovery vs. Collection Agency: Cost Comparison

What really saves you money, boosts recovery, and keeps you compliant?

1. Why timing matters

After two or three billing cycles (roughly 60–90 days), the odds of collecting in-house plummet. Industry data shows that every 30-day delay chops the chance of recovery by about 10 percentage points. If the account is 90 days past due, the debtor is already treating the bill as “optional,” and professional leverage becomes essential.

2. Cost showdown – letters & calls

Task	Typical In-House Cost*	Typical Agency Cost*	Why the gap exists
Five demand letters	US $80–150 (staff time, stationery, postage, software)	≈ US $15–20	Agencies batch thousands of letters, postage and print at wholesale rates.
Five follow-up calls	US $45–90 (10 min × 5 calls @ US $25/hr)	Contingency fee only if agency uses live collectors	Agencies work on “no collect, no fee” for calls; you pay from proceeds rather than upfront.

Based on Sterling Commerce’s US $30 per paper invoice study and David O. Willis’s US $16 billing estimate, updated for 2025 wage and postage averages.”
Bottom line: even before you add skip-tracing tools, credit-bureau reporting, or compliance monitoring, an agency can be 5–10× cheaper on pure operating cost.

3. Recovery rate & return on investment

Average in-house teams collect 12–15 % of dollars placed after 90 days.
The mean U.S. agency recovery rate is 20–30 %, according to ACA International surveys.
High-performing agencies routinely post 40 %+ on fresh commercial debt and 50 %+ on medical debt with accurate contact data.

Because contingency fees are usually 15–35 % of what’s collected, you still net more cash even after paying the agency.

4. Compliance—your hidden risk

Regulations (FDCPA, TCPA, HIPAA, GLBA, Reg F) carry stiff penalties—up to US $1,000 per consumer per FDCPA violation plus class-action exposure. Dedicated agencies maintain licensing, bonding, and attorney-vetted letter templates, shielding you from costly missteps.

5. Value-adds you don’t get in-house

Agency Tool	Benefit to You
Bankruptcy & deceased scrubs	Prevents wasted effort and potential legal issues.
Change-of-address, phone, & email appends	Up to 35 % more right-party contacts reached.
Credit-bureau reporting	Immediate credit-score impact motivates payment.
Skip tracing & asset searches	Locates debtors who have moved or “gone dark.”
Legal escalation network	One-stop access to collection attorneys in all 50 states.

6. Opportunity cost & focus

Every hour your staff chases debts is an hour they aren’t scheduling new patients, writing code, or closing sales. Outsourcing lets you redeploy talent to revenue-producing work, while the agency—built for scale—handles the grind.

7. Customer relationships

Modern agencies use consumer-friendly scripting and digital payment portals. Many debtors actually prefer a neutral third party over direct confrontation with your staff; it removes emotion and clarifies next steps.

8. When to flip the switch

If an account is 30–120 days overdue and your reminders are going unanswered, assign it to a collection agency that starts with first-party (“soft”) letters, then escalates to third-party demands and professional calls. Waiting longer only shrinks the pot you can recover.

Take-away

A reputable collection agency isn’t an expense—it’s a profit multiplier that lowers operating costs, lifts net recovery percentages, and guards against compliance landmines. That’s why banks, hospitals, utilities, and even the U.S. government outsource billions in delinquent accounts every year. If it works for them, it can work for you—starting as low as US $15 per account.

Ready to compare agencies? NexaCollect’s free matching tool can connect you with licensed, high-performing partners in minutes.

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?

Choosing between a debt collection lawyer and a collection agency can often be confusing.

In simple terms, the decision comes down to how much pressure you want to apply to your debtors.

To illustrate, think of it this way: a collection lawyer wields the biggest hammer when it comes to enforcing payment.

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 necessary in some cases, but it’s always better to start with the smallest and gradually increase pressure.

This approach helps preserve your reputation and gives the debtor a fair chance to settle the debt. Jumping to the biggest hammer too quickly can anger the debtor, potentially leading to unintended consequences.

Moreover, involving an attorney can increase the risk of facing a counter-lawsuit.

In many situations, the choice is fairly straightforward; in others, it comes down to personal preference and the complexity of the case. Interestingly, many clients use both options, starting with a collection agency and later involving a collection lawyer if needed.

A collection lawyer can be overly aggressive for most debt recovery situations. If preserving the relationship with the debtor isn’t important to you, this approach might still be suitable.

In contrast, a collection agency typically uses a more amicable and structured approach. It starts with polite collection letters, followed by collection calls if necessary. If the debt remains unresolved, the case can escalate to legal action—matching the intensity of a lawyer when needed. However, working with a collection agency offers a better chance of maintaining a positive relationship with your customer or consumer throughout the process.

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 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. However, a collection lawyer may ask you to pay for the filing fee, that can be refunded if you get a favorable judgement.

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).

Small Business Collection Agency: Debt Recovery

Small businesses must partner with a collection agency to recover unpaid invoices swiftly—without draining internal resources or risking valuable customer relationships.

Our service is cost-effective, results-driven, and built on professionalism, helping you maintain goodwill while boosting your cash flow.

Unpaid invoices can significantly strain a business’s finances. Collecting money from accounts receivable can be very tricky, especially when you have shared a long-term business relationship with these clients.

Without a proper debt collection strategy, these accounts tend to become non-recoverable over time. Hiring a debt collection agency becomes mandatory when your in-house recovery efforts are exhausted. Always select a collection agency whose approach is achieving higher recovery rates while preserving your business reputation and customer relationship.

Here are the top 7 things small businesses want from a collection agency:

High Success Rates and Excellent Online Reviews
Low Cost and Transparent Fee Structure
Professional and Ethical Practices
Strong Client Support Team and Reporting
Customized Solutions for Specific Needs
Focus on Preserving Customer Relationships
Ability to do Skip Tracing and Credit Bureau Reporting

Need a Collection Agency for your Business?

Contact us

• Nationwide Coverage • US Citizens-Only Team • High Recovery Rates • Free Bankruptcy screening • Free Credit Bureau reporting • Free skip tracing • 5-star rated • 24×7 Secure Portal • Industry Specific Collectors • Cost-Effective

Past-due accounts can result in several financial issues, including:

Negative cash flow for your small business.
A severe cash crunch may restrict the ability of a small business to continue with its normal operations.
Delay in providing salary to your employees.
Even hamper your ability to make payments to your own suppliers.
Frankly, everyone hates following up with customers regarding payments; again and again, it results in a growing frustration in your staff and wastage of their time and your money.

Does your Small Business have an Internal Accounts Receivable Strategy?

Unless you create a well-defined policy for your staff, you will keep losing money to unpaid bills. What different steps should you take when a bill is 15 days overdue, then 30 days, then 60 days, etc. There must be a well-documented policy in this regard. Here are a few things to consider:

1. Has this happened for the first time?

Send a follow-up invoice via certified mail and retain a copy for your records. Then make a phone call the day after the client receives your reminder invoice. Say something like this .. “John, maybe you did not get our invoice last time. Therefore, we have re-sent it.“, then carefully listen to what the client has to say. The client will likely give you the reason for non-payment, even without you asking for an explanation.

There is a possibility that their delay is simply due to an oversight, glitch or a temporary business circumstance. For example, an officer who issues the check could be on leave, a temporary non-serious cash flow crunch, or maybe the client never received your invoice or lost it. They might tell you that the payment will be issued today or tomorrow if it was just an oversight.

But, if the client appears to be deferring the payment or giving false excuses, take it as a warning sign. Keep this account under watch.

Your staff should also be informed in advance to be extremely careful, professional, and diplomatic with such clients. Since there is a doubt regarding their ability to make timely payments, have a well-planned strategy to prevent their debt from increasing further.

2. Has the client started to delay payments repeatedly?

There is likely a more significant problem brewing at your client side. Maybe the client’s own business is not doing too well. You should find out. Politely ask, “John, we have been doing business with you for “X” number of years, and getting payments on time was never a concern earlier. Would you mind sharing with us what has changed recently?“.

Tell them that your own business is also facing problems due to this delay in payment. You could say, “John, since your payments are late, it has created some cash flow problems for us as well. Our small business runs on a very thin margin. I request you to clear our bills at the earliest“.

Showing your problem will convey that it’s not just your eagerness to get paid but your own compelling need behind it.

3. Do you have a better alternative?

Since getting compensated for your products or services has become an ongoing problem, start looking out for other clients/business partner/supplier who does not have a cash flow problem. Doing business with your current client has become too risky; it’s the right time to cut the cord and minimize your losses.

4. Do you know the real reason behind these non-payments?

Talk to all contacts you usually deal with at this client’s office. Maybe another client contact will disclose the reason for non-payment, although you can never be sure if the reason given by your client is right or not. Keep notes of what the client says during each call and if the story changes in the next call. Be mentally prepared for all kinds of excuses.

Meanwhile, start preparing to outsource the debt-collection process to a 3rd party Collection Agency.

5. Show faith in your client. It helps.

Create a good relationship so they will want to pay you first because other parties like you may also be waiting for payment.

“John, we have been doing business together for a while. We have great trust in your organization“.

Call it “moral faith” or “moral pressure“, but it works.

6. Control your anger

Speak less and to the point. Be a good listener. Regardless of the circumstances, never sound harsh or try to threaten your client, or lose your temper. If you annoy them, it may delay your payments further. A threatening language can even result in a counter-legal action against you Do you know there are debt collection laws in every state, and some of them also apply to original creditors like you? Generally, the in-house collections are not very successful after the account has been over 30-60 days past-due date.

Talk diplomatically and amicably. Keep your conversation short and to the point.

Do not interact too firmly or appear indifferent to their problems. This may irritate the client, and they may intentionally delay your payment even further. Similarly, do not try to be very soft and personal with the client, only to be taken for granted.

7. Give them the option to pay in installments

Has it been over 4-6 weeks from the payment due date, and the sending reminder invoices or making calls have not worked? Now try giving your client an option to pay in installments. If that fails, then stop taking any more stress yourself. The matter is beyond your own control.

That’s it .. now what? ⛔

Don’t waste more time

Hire a Small Business Collection Agency

8. Most likely, you cannot resolve the situation in an amicable manner

Your client has repeatedly failed to make a payment multiple times despite reassurances. He is already avoiding taking your phone calls. Does he need more time to clear the debt? Has he suddenly started to dispute the quality of your services? The time is up.

Let an expert collection agency deal with this situation. The involvement of a Small Business Collection Agency is truly a game-changer.

9. Don’t waste more time: ( “Really-Really” Important)

If you remain on the sidelines regarding whether to transfer an account to a collection agency or not, the situation will only worsen over time. Without a doubt, approach a small business collection agency if your payment has been due for over 60-90 days.

Statistics prove that the longer you wait, the harder it becomes to recover your money.

The involvement of a professional debt collection agency automatically puts astronomical pressure on the client. Collection agencies have many tricks and legally valid ways to collect money that you may not even know.

Commercial collection agencies will not charge you anything until your money is collected. Depending on the amount owed and the circumstances, a small business collection agency will charge between 30% to 40% of the amount they recover. Fully understand the fee structure before hiring a collection agency.

10. Maintain proper proof of the services or products delivered, including all communications made with your client

Keep all invoices, proof of goods or services delivered, and copies of reminder invoices sent by you. Also, keep a copy of communications done via email and the date/time of phone calls made by you and what they have been telling you. Provide this information to your Collection Agency while submitting this account.

11. Take LEGAL ACTION if necessary.

Depending on many factors (age, the amount owed, and risk), your small business collection agency will advise you if filing a lawsuit is advisable.

There is no guarantee that your business relationship with the client will remain intact. Still, a step-by-step approach will increase the chances of resolving things amicably.

The cost of hiring a collection agency and information about their services is mentioned here. This includes Collection Letters, Collection Calls, Skip Tracing, Various Scrubs, Legal, Advanced Skip Tracing, Diplomatic Contacts, Credit Checking, Credit Bureau Reporting, and much more. Contact us for your small business debt collection agency needs. Do you need a Local or a Nationally licensed collection agency? Does your small business require Spanish Debt Collections or not?

Recommended article: Improve Cash Flow for your Business

Statute of Limitations in Debt Collection

Statute of Limitations (SOL) is a time period after which a debt collector loses the right to sue the debtor or take any legal action against him. Statute of limitations laws vary from state to state, for example in California it is 4 years while in Rhode Island it is 10 years.

In most states, it’s between 3 to 6 years. Debts that have passed the statute of limitations are also known as “time-barred debts“.

Q1. If the statutes of limitations have passed, is the debtor free from debt?

No, the debtor still has the moral obligation to pay. The debt has not disappeared just that the debt collector can no longer force a debtor to pay or sue him in court.

Q2. If a debt collector contacts a debtor after the Statute of limitations has passed, has he broken a law?

Not necessarily. Let us look at these scenarios.

– A debt collector may have a wrong “Date of Debt” in his system. It is also possible that the debtor has wrongly calculated it, and the Statute of Limitations has not yet expired. Both parties should clarify this amicably, so there is no confusion. Present the proof if necessary.

– A Debt Collector can still try to collect money by sending a letter and calling over the phone. The debtor can tell the collector that he has no intention to pay. The guidelines on the Statute of Limitations vary by each state (and sometimes cities too), a collection agency must be very careful while trying to collect on these time-barred debts.

Q3. What are the consequences of not paying the debt after the Statute of Limitations have passed?
The debt collector can report the bad debt to the credit bureau reporting agencies like Experian, Transunion and Equifax (if permitted by the state laws). That unpaid debt will appear on the debtor’s credit history for seven years. This will greatly lower the chances of a debtor taking more loans and sometimes even make harder for him to get a good job for many years to come.

But wait, the debtor may be on the hook for paying taxes on the forgiven debt.
There is another consequence of not paying the debt. If the financial institution forgives or writes off a debt over $600, they may send a Form 1099-C to the IRS and a copy to the debtor as well. This only applies to the principal amount, and interests and other fees cannot be added. IRS will ensure that this amount is added to the debtor’s income. There are some exceptions when this is not applicable, like the discharge of debt due to bankruptcy or debtor’s insolvency etc. Since the debtor took the money and did not pay it back, IRS treats this as an income and demands tax on it. If the debtor claims insolvency, then IRS form 982 may apply. The debtor should consult a tax professional to handle this scenario.

Q4. How is the Statute of Limitations date calculated?
First, let’s understand the “Date of Debt” concept. It is the date when the debtor made some activity on that account. It could be the date when the item was purchased, or when the payment was due, or when the last payment was made, or even when the debtor re-agreed to pay the debt (which means the debtor has agreed again to the ownership of the debt). The most recent date is called the “Date of Debt” and the SOL is calculated from that date.

A debtor may have agreed to pay in 4 different ways
a) Oral Contract – Debtor agreed to pay orally (ex: an orally recorded phone message)
b) Written Contract – This could be a signed contract or an invoice. ( ex: A medical bill plus a written agreement)
c) Promissory Note – In this, the details of repayments are spelled out – For example, mortgages or car loans.
d) Open-ended– Here the balance and repayment terms can change- Ex: Credit cards, line of credit etc.

Following are some examples of Statute of Limitations by each state (in the number of years).

State	Oral Contracts	Written Contracts	Promissory Notes	Open-Ended
Alabama	6 years	6 years	6 years	3 years
Alaska	6 years	6 years	6 years	3 years
Arizona	3 years	6 years	6 years	3 years
Arkansas	3 years	5 years	5 years	3 years
California	2 years	4 years	4 years	4 years
Colorado	3 years	6 years	6 years	6 years
Connecticut	3 years	6 years	6 years	6 years
Delaware	3 years	3 years	3 years	4 years
Florida	4 years	5 years	5 years	4 years
Georgia	4 years	6 years	6 years	4 years
Hawaii	6 years	6 years	6 years	6 years
Idaho	4 years	5 years	5 years	4 years
Illinois	5 years	10 years	10 years	5 years
Indiana	6 years	6 years	10 years	6 years
Iowa	5 years	10 years	5 years	5 years
Kansas	3 years	5 years	5 years	3 years
Kentucky	5 years	10 years	15 years	5 years
Louisiana	10 years	10 years	10 years	3 years
Maine	6 years	6 years	6 years	6 years
Maryland	3 years	3 years	6 years	3 years
Massachusetts	6 years	6 years	6 years	6 years
Michigan	6 years	6 years	6 years	6 years
Minnesota	6 years	6 years	6 years	6 years
Mississippi	3 years	3 years	3 years	3 years
Missouri	5 years	10 years	10 years	5 years
Montana	5 years	8 years	8 years	5 years
Nebraska	4 years	5 years	5 years	4 years
Nevada	4 years	6 years	6 years	4 years
New Hampshire	3 years	3 years	6 years	3 years
New Jersey	6 years	6 years	6 years	6 years
New Mexico	4 years	6 years	6 years	4 years
New York	6 years	6 years	6 years	6 years
North Carolina	3 years	3 years	5 years	3 years
North Dakota	6 years	6 years	6 years	6 years
Ohio	6 years	8 years	15 years	6 years
Oklahoma	3 years	5 years	5 years	3 years
Oregon	6 years	6 years	6 years	6 years
Pennsylvania	4 years	4 years	4 years	4 years
Rhode Island	10 years	10 years	10 years	10 years
South Carolina	3 years	3 years	3 years	3 years
South Dakota	6 years	6 years	6 years	6 years
Tennessee	6 years	6 years	6 years	6 years
Texas	4 years	4 years	4 years	4 years
Utah	4 years	6 years	6 years	4 years
Vermont	6 years	6 years	5 years	3 years
Virginia	3 years	5 years	6 years	3 years
Washington	3 years	6 years	6 years	3 years
West Virginia	5 years	10 years	6 years	5 years
Wisconsin	6 years	6 years	10 years	6 years
Wyoming	8 years	10 years	10 years	8 years

A state may alter the Statute of Limitations from time to time therefore do not rely on the table above. Your collection agency should have the most up-to-date information on this. Proof of last activity may be a copy of a check, credit card statement, and other forms of communication that may have happened with the debtor.

Q5. What can Restart the Statute of Limitations?

If a debtor makes even a small payment ( say even $10) after the Statute of Limitations has passed or agrees to make payment under a new arrangement, it can potentially reset the “Date of Debt” again. In other words, the Statute of Limitations will reset and the debt collector can sue the debtor in the near future.

Q6. Can the old debts be removed from the debtor’s credit report once the Statute of Limitations has passed?

It can be removed only if the debt is inaccurate or legally disputable or has been resolved. Statute of Limitations has nothing to do with credit bureau reporting and affects the credit score for 7 years. Medical debts are removed from credit reports when paid.

Q7. Why is there a concept of Statute of Limitations after all?

It’s a kind of fairness doctrine. A debtor cannot be harassed all his life for a debt he could not pay. After all, even a creditor risks if he does not take the full payment immediately. As the debt gets older, circumstances change, documents are lost and important evidence can be misinterpreted. The objective is to encourage diligent collections while evidence is available and fresh. Considering all these factors, the Statute of Limitations came into existence.

Most collection agencies will stop collecting on a debt once the SOL is reached. They just lost the biggest tool ( read it “soft scare tactic”) used to recover unpaid debts.

Are you looking for a collection agency? Get in touch with us by visiting our “Contact us” section.

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Finding a Good Collection Agency

Selecting the right collection agency can significantly boost your recovery rates, safeguard your reputation, and simplify your accounts receivable process. Here’s what you need to look for in a great collection agency:

1. Proven Track Record

Choose a collection agency with a solid track record. Check their reviews, success rates, and experience in your specific industry (medical, dental, commercial, education, etc.). Agencies with higher Google ratings (4.5 stars or above) and hundreds of positive reviews typically deliver better results.

2. Clear and Simple Pricing

Collection agencies usually offer two pricing models:

Fixed Fee (around $15 per account): Ideal for recent debts.
Contingency Fee (20%-40% of recovered amount): Best for older or tougher debts.

Always choose agencies transparent about their pricing, with no hidden fees.

3. Compliance with Laws and Regulations

The agency must strictly adhere to collection laws such as:

FDCPA (consumer protection)
HIPAA (medical debt privacy)
GLBA (financial information privacy)

This protects your business from lawsuits and preserves customer trust.

4. Skip Tracing Capabilities

A good agency will offer skip tracing—finding updated contact information, addresses, and employment details for debtors. While an individual search could cost you $50-$175, agencies often include it at no extra charge.

5. National Coverage and Resources

A collection agency with nationwide coverage can efficiently track down debtors who move between states. This maximizes your chances of debt recovery.

6. Excellent Customer Service

You want an agency that’s easy to work with. Test their responsiveness: Do they answer your questions clearly and quickly? Reliable customer support makes the collections process stress-free.

7. Preservation of Your Reputation

Your chosen agency represents your brand. Look for agencies committed to respectful communication. Over 80% of positive online reviews for top agencies often come from debtors themselves, impressed by the respectful and professional handling of their cases.

8. Efficient Reporting

Make sure the agency provides regular updates and clear reporting. This transparency helps you track your collection success and adjust your strategy if needed.

9. Legal Options if Necessary

Most debts (90%+) are resolved without going to court. However, your agency should have the option to escalate matters legally if needed, using a network of attorneys to efficiently handle tougher accounts.

10. Is Your Data Secure?

Sharing your customer data with a third party agency can be risky if they do not have appropriate security measures in place. Ask for all the certifications and in case they have cyber security insurance.

Final Tip

Don’t just pick the cheapest option. Select an agency that offers the right combination of price, reputation, recovery success, compliance, and customer care. Choosing wisely can significantly improve your cash flow and reduce financial stress.

Ready to move forward? Contact NexaCollect to discuss your specific needs and see how we can help you collect your outstanding debts professionally and efficiently.