Fixed Fee Collection Services – How it Works?

Collection agencies that offer fixed fee collection services typically provide a different approach compared to traditional contingency-based collections.

With Fixed Fee service, you purchase a batch of accounts in advance. For each account, we send out 5 attorney-approved collection demands to your debtors. You retain 100% of all money collected, and debtors pay directly to you. Unused accounts never expire and can be utilized anytime in the future. Most clients can completely write off the cost of this fixed-fee service as a business expense, effectively making it zero cost to you. These services are suitable for accounts less than one year old and cost approximately $15 per account. We advice clients to always use fixed fee service first, and only then allow accounts to flow to contingency collections. This results in a extensive cost savings for clients.

Here’s an overview of how fixed fee collections typically work:

1. Flat Rate Pricing: Unlike contingency collections where the agency takes a percentage of the collected amount, fixed fee services charge a set rate per account, regardless of the debt size. This fee is usually paid upfront.
2. Cost-Effective for Small Debts: This model can be more cost-effective for collecting smaller debts, as the percentage taken in contingency arrangements may be too high relative to the debt amount.
3. Services Offered: Fixed fee collections often include sending a series of letters on the agency’s letterhead, making phone calls, and possibly reporting to credit bureaus. The intensity of these efforts can vary based on the service level purchased.
4. Less Aggressive Approach: Since the agency is not working on a commission basis, the approach might be less aggressive than contingency collections. This can be beneficial for maintaining customer relationships.
5. No Performance-Based Incentive: As the fee is fixed, there’s no direct financial incentive for the agency to ensure the debt is collected. This could affect the collection success rate.
6. Legal Action: If these initial attempts do not result in payment, some fixed fee services may offer options to escalate the matter, potentially including legal action. However, this usually involves additional costs.
7. Transparency and Budgeting: Fixed fee services provide clear costs upfront, making it easier for businesses to budget for debt collection expenses.
8. Suitable for Large Volumes: This model can be particularly beneficial for businesses with a large volume of small accounts receivable, as it provides a standardized, scalable approach.

It’s important for businesses to weigh the advantages and disadvantages of fixed fee services against traditional contingency collections to determine which method aligns best with their needs and financial objectives.