When companies are considering hiring a collection agency one of the first questions is, “How much do you charge?”
It is understandable to be concerned about the cost considering your business is already owed money for services or products performed. Attempting to hire a collection agency at the lowest rate possible may result in less revenue received over time.
Before we dive deeper, understand that most collection agencies work on a contingency rate. This means that the collection agency only keeps a percentage of any money they successfully collect. If they fail to collect any money, they receive nothing for those efforts.
Let’s look at some real life examples to see why hiring the cheapest collection agency is not always the best decision.
The first example we will consider is a HVAC small business looking to hire a collection agency.
The HVAC company has 5 accounts past due, totaling $6,000.
The HVAC company contacts three collection agencies for quotes.
We will call them Collection Agency #1, Collection Agency #2, and Collection Agency #3.
Collection Agency A is a new collection agency hungry for new clients but do not have a seasoned debt collection process in place yet. They will collect the debt for a 15% rate.
Collection Agency B is an established collection agency who has represented many HVAC companies in the past. They offer to collect the debt at a 25%.
Collection Agency C is an established collection agency but specialize mostly in medical collections. They aren’t as familiar with collecting debt in the HVAC industry but will take on the new client at a rate of 40%.
So we have three proposals on the table, now let’s go through the three outcomes.
Collection Agency A offered the lowest rate at 15%. Most small businesses looking to hire a collection agency would not consider to ask how long the agency has been in business or do they have any references from other HVAC companies that has represented them.
They would see the rate of 15% compared to 25% and 50% and the decision would be easy.
Collection Agency A is a new collection agency though with debt collectors who has no experience in collecting for HVAC companies.
Collection Agency A gives a good effort though and ends up collecting $1,200 total.
Remember, the contingency rate was 15%, so Collection Agency keeps 15% of the $1,200 collected which is $180.
Total Revenue: $1020
Collection Agency B was an experienced collection agency that has represented many HVAC companies and has a team of veteran debt collectors.
Collection Agency B was able to collect $3,500. At the 25% rate, the collection agency will keep $875.
Total Revenue: $2625
Collection Agency C was an established collection agency with experienced collectors but mostly collect medical debt. They had little experience with representing HVAC companies so they charged 50% to make it worth it.
Collection Agency C utilizes the experienced collectors to collect a whopping $5,000!
Collection Agency C charged 50%, so they will keep $2,500 for the contingency fee.
Total Revenue: $2,500
|Name||Amount Collected||Rate Charged||Total Revenue|
|Collection Agency A||$1,200||15%||$1,020|
|Collection Agency B||$3,500||25%||$2,625|
|Collection Agency C||$5,000||50%||$2,500|
As you can see, the best decision for the HVAC company would of been to hire collection agency B.
Notice, this collection agency did not charge the lowest rate or collect the most money but they did return the most money to the HVAC company.
If the HVAC company would of went with the lowest rate, it would of cost them over $1,500% in potential revenue! Plus, how much lost money in the future?
While collection agency C did a great job of collecting the most money, the super high contingency rate resulted in the HVAC company receiving slightly less than collection agency B.
We hope this example shows that it isn’t always about finding the cheapest collection agency but finding the best fit for your business.
If you are considering hiring a collection agency, feel free to use the button below for a risk free quote.
Is your business collecting debt from individual consumers or other businesses?
Collect from businesses only
Collect from individual consumers and businesses
Roughly how much debt are you looking to collect?
$100,000 or more
Roughly how many accounts are you looking to collect from?
100 or more
On average, how long have the accounts been past due?
Two to six months
Six to 12 months
One year or more