Collection agencies offer 3 types of debt recovery services. You can select any of these or use them one after another.
- Five Collection Letters/Demands cost about $15 per account are best suited for accounts which are less than 180 past due. Debtor pay directly to you and there is no other cost regardless of the outstanding amount. It is a very a 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 whether you want demands to go out with your name on it or the collection agency’s name).
- Collection Calls are more suitable for accounts that are over 180 days past due, or have finished the collection letters service and sill 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 is the final step. This step is recommended if an account is still unpaid after numerous collection efforts and the balance is significantly higher. Contingency collections but fees varies depending on the complexity of the case. (Also called the “Step 4” service)
|Contact us for a free consultation regarding these services.|
Collection agency cost for various services: Comparison
Majority of clients initiate the debt collections activity from “Step 2”.
|Stage||Collection Agency Cost
||Best for accounts age|
|Step 1 – Letters 1st Party
( 5 reminder letters sent on your name for each account. Account not in collections yet. Fixed Fees.)
||Between 30-60 days|
Step 2 – Letters 3rd Party
|Between 60-180 days|
Step 3 – Collection Calls
|No upfront fees, you get charged only when a collection agency recovers your money. Fees is no more than 40% of the amount collected and you get minimum 60% back.||After 180 days|
Step 4 – Legal
|Fees varies and communicated in advance ( Usually between 30% to 50%).||After above efforts have exhausted|
Thumb Rule: Go for the better one not the cheapest one
Calculation Proof: Collection Agency “A” charges $15 and is able to collect $500. Collection Agency “B” charges $20 but is able to 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. Charges of various collection agencies in USA does not vary too much, but performance does. It is undoubtedly better to stick with an agency which has better collection rates than its peers, even if it charges a few extra dollars per account for fixed fees 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.
Location of a collection agency does not matter either, stop searching for a Collection Agency near you. It is more important that the agency has good debt collectors, high recovery rates and licenced to recover money in your area.
Important considerations when shortlisting a Collections Agency:
- You can start collections from any step mentioned above, and not necessarily “Step 1”.
- For the Fixed Fees service, ask if the agency offers any kind of guarantee on the recovery rate.
- For Fixed Fees service, what is the policy on expiration of accounts?
- Do they send collection letters in colored print or in black and white prints. It’s better to pay extra for colored prints as they have maximum impact.
- Can they send both Spanish and English collection letters.
- Are the Scrubs performed, if it includes Litigious debtor, Bankruptcy, 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 Place stops on collections activity of a debtor.
- A larger collection agency does not necessarily mean that its better.
B2B collections which carry higher balances fall under 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 experience of staff. Use our contact form to get connected with one of them. This is a free service.