Collection agency pricing
Debt collection is usually done on a contingency basis. This means that the collection agency keeps a percentage of money that is collected. Depending on a variety of factors (such as the age of the debt, the average amount owed, the volume of collections you have, and even the demographics of your client base) commissions can range from 10% to 50% of the recovered amount, but are usually average around 25% if the delinquency is less than a year old. Check out real examples of the collection agency rates other BuyerZone users are paying.
The collection agency typically has about the same administrative overhead when collecting large debts compared to small debts, but because the larger debts will yield a higher dollar amount the percentage you pay is typically lower. Newer debts also have lower fees because they are more likely to be recovered than older debts. If an account is passed from collections to a legal action the fee may go up, as well – fees of 40% to 50% are more common once the agency involves a lawyer.
It is important to balance the commission charged with the collection agent's success rate. If you place a total of $10,000 worth of debt with an collection agent that has a 70% recovery rate and charges a 25% commission, you would collect a total of $5250. If you placed the same debt with another collection agent that only charges 10% commission but has a recovery rate of only 40%, you would only get $3600. Be sure to consider the recovery rate when making your decision.
The advantage of contingency billing is that you don't pay for uncollected debts. However, some collection agents won't offer contingency services for small debts. In these cases, you will typically pay a fixed fee for a series of letters or calls.
Be wary of any collection agency that quotes you a fee that seems unusually low. This could be a sign they are using tactics that are out of compliance with the FDCPA.