Collection Rate vs. Contingency Fees: Getting the Most Out of Your Collection Agency

There are an incredible number of variables to consider during the process of choosing a commercial debt collection agency to handle your company’s delinquent accounts. As much as you might value important factors like location and experience, the two biggest keys for any business owner are collection rate and contingency fees.

Of course, those two factors have a tendency to work in opposite directions, so finding the agency that has the right combination for your business can often be easier said than done. In order to help you get a better grasp on what to look for, let’s dive in and take a closer look at each side of the equation.

Collection Rate

Collection rate is how we describe the track record of success that a commercial debt collection agency has had. We can calculate it quickly by dividing the number of successful collection efforts by the number of attempted collections.

When evaluating an agency’s collection rate, it is important to consider the context. An agency that attempts a large number of difficult collections will naturally have a lower collection rate than a company that cherry picks only the best opportunities. In those cases, the first company might have a lower collection rate despite producing more impressive results on a per case basis.

Contingency Fees

Contingency fees are the common structure that debt collection agencies use to bill their clients. The way this works is that the agency and the client agree up front that the agency will keep a certain percentage of the amount that they collect.

Just like we saw with collection rates, contingency fees can often be misleading numbers. Choosing an agency simply because they offer the lowest contingency fees can often be a mistake. That is because the percentage that you agree to pay them won’t matter at all if they are unable to collect on an outstanding debt.

Finding the Middle Ground

Because collection rates and contingencies fees can both be misleading, it is important to consider both of them, along with a number of other factors, when you are making a decision on hiring a collection agency.

In many cases, the best agency for your business will be somewhere in the middle of the range of possibilities in terms of both collection rate and contingency fees. It is important to make sure that they are not taking advantage of you on either number, but you also shouldn’t expect unrealistic numbers if you are looking to produce results.

Wild Card: Customer Service

One additional factor that can make a significant difference in the way that you work with a debt collection agency is their customer service abilities. If they are able to make you feel at ease and are easy to exchange information with, that can go a long way towards making the entire process less stressful…and that is often something that is well worth paying for.

Whether you are looking to hire a debt collection agency for the first time or you are simply reevaluating your current arrangement, it is important to remember that any agency you talk to will need to give you some context to properly grasp how their collection rate and contingency fees will apply to your situation.

With that in mind, hiring a debt collection agency will almost always produce a net positive. You won’t have to waste any more time chasing down delinquent accounts, so you can focus on actually running your business.

By | 2017-10-13T16:17:32+00:00 October 24th, 2017|Blog|0 Comments

About the Author:

Graduated from University of Utah - business degree 1990. Served in US Army as an interrogator / linguist, then as a tactical intelligence officer - Military Intelligence 1986-1990. Managed Western US sales operations for NY based collection agency 1990-1992. Founded Direct Recovery Associates, Inc. 1992-present