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How Much do Debt Collection Agencies Charge?

May 2, 2022

There is no exact amount when it comes to how much debt collection agencies charge because debt collection depends on many factors. The amount owed, size, age of the debts, and many other factors influence how much these debt collection agencies charge.   

There are two main types of debt collection agencies regarding charges:  

  1. Flat-fee collection agencies, and  
  2. Contingency collection agencies 

Flat-fee Collection Agencies   

Collection agencies that accept flat fees have fixed charges for their services. The fee is static and is not influenced by the failure or success of the collection. This means that they will still get paid whether they recover your debts or not. You’d be wondering why people choose them. People choose them for two main reasons:  

  1. Affordability  

Large collection agencies mostly adopt flat-fee collections. Their size helps to make the collection of the debt easier and faster. For a company with small debts to collect, they might be able to pay $15 per account, which is a common amount for the flat fee for collection agencies for smaller accounts.  

  1. Age of the debt  

The age of the debt affects the recovery rates. If it’s a new debt, you might go with a flat-fee collection agency because, according to recent stats, new debts are relatively easier to collect.   

The downside of many flat-fee debt collection agencies is that productivity of the debt collection comes into question. A flat-fee agency may not be so motivated to go all out for your debts, because their fees aren’t affected by the failure or success of the collection process. It’s important to conduct research on trusted debt collection agencies in your area and ask them about their experience and expertise in successfully collecting debts for other organizations.  

Contingency Collection Agencies   

Contingency collection agencies charge based on their performance. In this type of collection, a certain percent of every loan recovered is charged up to 50% of the entire debt recovered.   

A company will make payments after collection, which means that you won’t pay any fee if they recover no funds. The percentage they charge is dependent on the difficulty of the debt collected. If your debts are easy to recover, they might charge as low as 15%. But you will pay a higher percentage of the total cost collected if your debts are difficult to collect.   

Advantages of a Contingency Collection Agency   

  1. Quality service  

Since their pay is dependent on successful collections, a contingency collections agency does their best to ensure that they succeed. You’re guaranteed quality service because their efforts might go to waste if they don’t recover any debt.   

  1. Good for tackling difficult debts  

The more difficult the debts, the higher the percentage for this type of collection agency. They are great at recovering difficult loans due to what they stand to gain. But you’ll be left with almost half of what was recovered. The downside of contingency collection agencies is that they can get expensive, especially when dealing with difficult loans.   

How effective are debt collection agencies?   

The effectiveness of debt collection agencies depends on how much you’re willing to pay. Like every other service, your budget determines what you’ll get. If you hire a cheap collection agency, you don’t expect them to offer quality services. So, the quality of your services depends on the type of agency you hire.   

Who pays the collection agency?   

The client company (the creditor) that hired the collection agency pays the collection fees. Before a collection agency swings into action, they must have signed an agreement with the creditor. The agreement spells out the terms and conditions of the contract.   

When should I hire a collection agency?   

When the debt exceeds 90 days, it’s wise to reach out to a debt collections agency. At this point, it’s safe to assume that the older the debt, the more difficult it is going to be to recover on your own. A company will want to get an agency involved to speed up the recovery process to enable business owners to focus on other aspects of their business.   

For the Capital Recovery team, our missions of becoming a world-class provider of Extended Business Office and Recovery Solutions have allowed our team to help many clients get back their past due debt owned while also maintaining great customer relationships and restoring credit. Reach out to us to start a conversation today.