Collection Agency Cost | Debt Collection Fees

Before we discuss the fair cost of hiring a collection agency, please take a moment to read the two paragraphs below.

When hiring a collection agency, their fees should reflect the quality and range of services they provide. It’s generally better to choose a full-service collection agency, rather than one that lowers its fees by cutting important services or taking shortcuts. We have been in this industry for over 20 years, and fully understand how collection agencies should work, and what they should charge.

Key factors to consider when selecting a collection agency:

Ensure they comply with regulations like GLBA, FDCPA, TCPA, FCRA, and HIPAA.
Choose the service that fits your needs, not what the collection agency agent wants you to sign up for.
Will they keep your and your customer’s data secure, and licensed in all 50 states?
For fixed-fee services, ask if they offer any guarantees on the recovery rate.
Understand their policy on the “expiration” of accounts you purchase under a fixed-fee service.
Do they send collection letters in color or just black and white? Paying extra for color can have a bigger impact on the debtor.
Can they send letters in both English and Spanish?
Check if they perform necessary scrubs, including for litigious debtors, bankruptcy cases, or USPS change of address.
Is their entire operation based in the U.S., or is any part outsourced?
Do they provide an online portal where you can submit accounts, view reports, and pause collections as needed?
A larger collection agency isn’t always a better choice—size doesn’t always equate to quality.

The debt collection approach is significantly different for Consumer and Commercial collections.

Consumer Collections Cost (B2C Recovery)

Collection agencies offer four types of debt recovery services.

First two options are extremely cost effective if your accounts are less than 180 days past due.

It is recommended to start from Step 1 (written reminders as if they are coming from you), and then gradually move to the next steps till your debtor pays. There is no restriction that you must start from Step 1. You can start from any of the Step of your choice.

STEP 1: Pre-Collection (Fixed Fee Service ~ $15 per account)
In this stage, five contacts or reminders are sent to the debtor, using your company name. Although handled by the collection agency, the account isn’t officially in collections yet. Debtors are instructed to make payments directly to you. These reminders warn the debtor that if the account isn’t settled, it may proceed to collections. The service is fixed-fee, costing around $15 per account. The contacts include two phone calls and three USPS mailings over a 30-day period.
STEP 2: Collection Demands (Fixed Fee Service ~ $15 per account)
Similar to Step 1, but now all five contacts are made using the Collection Agency’s name instead of yours. All communications are sent via USPS mail, with no phone calls. The intensity of each demand increases, making it clear to the debtor that their account has been forwarded to collections and the situation is more serious. This service also costs approximately $15 per account, with payments still directed to you. If you choose both Step 1 and Step 2, called the COMPLETE service, the cost for all ten contacts is reduced to about $20.
STEP 3: Collection Calls (Contingency Fee ~ 40% of the amount recovered)
At this stage, the tone shifts to more assertive collections. A professional debt collector will begin calling the debtor to amicably resolve the debt. If necessary, the approach will become more firm within legal limits. No threats are made, but collectors know how to apply pressure to secure payment. Collection calls may continue for days, weeks, or even months, depending on the case. You receive 60% of the recovered amount, while the agency takes 40%. This is a “No recovery, No fee” service, meaning the agency only gets paid if they successfully collect. Tools like skip tracing, bankruptcy screening, and credit bureau reporting (if authorized) are used to enhance recovery efforts.
STEP 4: Legal Suit (Contingency Fee ~ 40% of the amount recovered)
This is the final step and is reserved for accounts that remain unpaid after multiple collection attempts, especially when the balance is high enough to justify legal action. The contingency fee for legal collections typically ranges around 40%-50%, depending on the case’s complexity.

Commercial Collections Cost (B2B Recovery)

Unlike B2C collections, most accounts of type B2B are directly handled by a debt collector specializing in commercial debt recovery.

Most commercial debts carry higher balances, B2B collection fees are lower than B2C collections. B2B is also a contingency-based collection service, costing 10% to 40% of the amount recovered. No recovery = No Fee.

Due to the complexity of collecting older debts, they typically attract higher fees. Moreover, accounts with smaller balances usually carry higher fees because they result in relatively lower profit margins for the collection agency.

You can check more about Commercial Collections here. The following table will give a rough estimate of B2B collection costs.

Commercial Contingency fee (Based on Account Age and Amount Assigned)
Age: If > 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 +

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Note: Go for a better Agency. Not the cheapest one

Let’s do some Maths:
Collection Agency “A” charges $15 and can collect $500.
Collection Agency “B” charges $20, works harder, and collects $750.

Which one will you select?
>> Agency “B” <<

Collection costs of various agencies do not vary significantly, but performance does.

Some agencies genuinely charge more since
– Their services are superior.
– They hire better debt collectors.
– To not give up on your accounts easily.
– They invest in the technology to keep your and your debtor’s data safe.

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. Select an agency with good debt collectors, high recovery rates, and has licenses to recover in your area.