How Much Do Collection Agencies Charge?
Debt collection can be a time-consuming and often frustrating process, leaving you and your team exhausted. While it’s common for B2B companies to struggle with collecting debts, this doesn’t have to be the norm. With a collection agency, you can hand that responsibility over to someone else. Third-party collection firms handle the burden of collecting payments and staying in contact with past-due customers.
If you’ve never worked with a collection agency before, you may wonder how the service compares to the cost. Debt collection agency pricing depends on a variety of factors, which we’ll discuss below.
How Much Are Debt Collection Fees?
The cost of hiring a collection agency varies, but most collection agencies will either have a fixed, flat rate fee or charge on a contingency basis. Some agencies use both approaches, with a flat fee upfront and a contingency fee if they collect money from debtors. You’ll want to consider the differences between the options below before determining which is right for you.
A contingency-based arrangement means the collection agency will only receive its fee after successfully collecting debt from your customers and clients. Also known as “No Payment, No Fee,” a contingency fee means you won’t pay an upfront fee for them to work on your behalf. This option means little risk to your company — if the agency is unsuccessful in collecting any money, your business won’t owe them anything. Payment is ‘contingent’ upon collection.
How much you pay will depend on the agency’s contingency rate. For example, suppose your company has outstanding collections that total $10,000 from 10 clients. If the collection agency has a 25% contingency rate, collecting your entire $10,000 would entitle them to keep $2,500. If they only collect $5,000 of the debt, they would keep $1,250.
The Benefits of Contingency-Based Debt Collector Fees
The contingency method can be attractive for several reasons, which include the following:
- You only pay for results: You don’t have to worry about paying the collection agency unless they recover what your clients and customers owe.
- You get their best efforts: Since the agency only earns their fee once they recover your claim, they’re highly motivated to recover your debt and deliver the best possible result.
- You don’t have to pay any upfront collection fees: You won’t have to pay anything while your debt is still outstanding, which can give you peace of mind.
Factors That Impact Collection Cost
Agencies likely won’t charge the same fee for every claim they pursue. Some commercial collection agencies may offer rates that are either too low or too high, making it difficult for clients to determine the value they are receiving in exchange for the fees they are paying.
The two main factors influencing collection agency fees are the debt’s size and age. Debts with a higher likelihood of collection often have a lower rate, while more complex or larger debts may require a higher fee. The larger the debt and the longer you’ve been waiting on payment, the higher the contingency fee.
Altus Receivables Management offers competitive contingent commercial collection rates, regardless of the size of the balance or its age. This means that clients can expect to receive the same level of service and results regardless of their specific needs and circumstances. The company’s commitment to delivering the best possible outcomes for its clients is evident in its flexible and fair pricing structure.
The older the debt, the more challenging it will be to collect, which is why some collection agencies charge a higher fee for recovering extremely past-due payments.
An arrangement with a flat fee means you’ll pay a one-time fee instead of a percentage of the money the debt collection agency recovers for your business. Flat fee rates generally fall anywhere from $10 to $25 per account, no matter the size or age of the debt. Flat fees tend to be lower than contingency rates. However, your company must pay these fees even if the agency doesn’t collect your money.
Regardless of the results, your company will pay an upfront fee before the agency takes any action to collect your clients’ outstanding payments. You should also be careful of agencies that try to charge you twice for their services, such as those who use both a flat rate and a contingency fee.
Which Is Right for You?
One of the first things to look at when considering hiring a debt collection agency is the type of fee they require. With a flat fee agreement, you pay a fixed rate per account regardless of the debt’s size. This option is usually best suited to businesses with many small outstanding accounts.
In most cases, contingency fees are more effective for recovering debt across the board. Since you only pay if the agency is successful, you won’t risk losing money to upfront fees. Your debt collection agency will also have more incentive to dedicate their time, resources, and effort to your case.
What are the Benefits of Hiring a Commercial Collection Agency?
The cost of hiring a debt collector is well worth the time, money, and frustration your company will save collecting outstanding payments. Here are the top benefits of working with third-party collections:
- They have more advanced technology: Many agencies use advanced technologies to streamline debt collection and ensure companies get their money faster.
- They help reduce staffing costs: Running an in-house collections department can become expensive, especially while you’re still pursuing payments. Third-party collection firms can act as a cost-effective solution because they are singularly focused on collections.
- They have more effective collection strategies: Businesses can face damaged credit or legal action if their accounts go to collections. As a result, debtors tend to take debt collection agencies more seriously than in-house departments.
- They offer legal support and expert advice: Some debt collection issues may require legal action. A full-service third-party collection firm can manage the litigation process and help you determine what actions to take.
- They help you collect more debt in less time: Debt collection agencies have a specific set of tools and techniques that let them collect debt efficiently and effectively while remaining secure and compliant. Working with professional debt collectors means increasing your cash flow without exhausting your resources.
No Recovery No Fee With Altus
Dealing with debt collection can prevent you and your team from giving your attention to other essential business matters. If you’re struggling to collect your debts, consider how a third-party commercial debt collection firm can ease the burden.
At Altus, it’s our mission to retrieve outstanding business debt for companies like yours. We work on a contingency fee, so you pay nothing if we don’t collect. We have the experts, resources, and solutions necessary to collect debts across various industries and markets. If you’re ready to strengthen and streamline your cash flow management system, contact us today to learn more about our services and get a quote on our contingency pricing.