Collection agencies typically offer two types of collection services to their clients. “Fixed Fee” and “Contingency Only” service.
In the Fixed fee service a collection agency sends multiple written demands only.
In the Contingency service one written debt validation notice is sent, followed by collection calls from an experienced debt collector.
Although the sales guy from the Collection Agency may attempt to sell you a “Fixed Fee” service, that costs around $20 an account. Fixed-fee may appear more beneficial after hearing all the sales pitch, however it may not be the best service for you after all. The biggest advantage that a collection agency gets is that the moment you buy their “Fixed Fee” service, they have made money from you even before a single account is placed for collections.
Unless your accounts are less than 180 days past due, the “Fixed Fee” service may be of little help. After the collection agency fails to recover money for you in the “Fixed Fee” service, they will later insist that you should transfer accounts to the contingency service.
Why go for the “Contingency Only” service?
- No upfront fee is involved.
- A collection agency makes money only if they collect for you.
- Credit Bureau reporting is done for free by most agencies.
- Calls from a debt collector are more impactful than written demands.
- Most agencies do USPS change of address check only in Fixed fee service. They do not perform skip-tracing, which is a more accurate tool to locate the debtor and his phone number. In Contingency service, almost all collection agencies rely on skip tracing.
- A debt collector is able to negotiate payment terms even with those tough debtors. For example, he may put the debtor in installments or settle the amount in one lump sum payment slightly lower than the original amount due.
- A debt validation letter is sent out anyway, even during the Contingency only service therefore your debtor knows the account is with a collection agency. So you do get a considerable benefit from this written demand as well.
- A collection agency takes all the headaches involved in the negotiation and takes money from the debtor. In a fixed fee service, you have to be the one to manage payment acceptance and negotiation.
When is the Fixed Fee service beneficial?
In our experience, it is a better service only if your accounts are no more than 180 days past due. If accounts are less than 120 days past due, then most likely it will result in significant cost savings over contingency collections.
Overall, if you want less hassle-based recovery, go for Contingency Only collections.