Do you want to outsource your business debt recovery process? If YES, here is a detailed guide to hiring a perfect debt collection agency and how much it cost.

Ever had a business deal with a customer who refused to stick to the plan and pay on time? If it disturbs you on how to retrieve your money and prevent late payments in the future, it is best to hire a debt collection agency. A collection agency is a company that acts on behalf of an organization to redeem its funds.

Why Hire a Debt Collection Agency?

Dealing with debt collection can be draining on your resources and time, so it is advisable to hire a professional to deal with delinquent accounts because of their vast knowledge in collection techniques. As a business owner, before hiring a collection agency, you should evaluate your debtor’s situation.

Review how many days payment has been overdue, how much they owe you and how much you are willing to settle for. When interacting with your debtor, maintain good customer service and minimize phone calls to avoid harassing them because you may need to keep a cordial working relationship with them as the debtor is still your customer.

A collection agency comes in when a company finds it difficult to collect debts from delinquent accounts. The collection agency gets the information of the debtor and works towards collecting the debt.

When Do You Need a Debt Collection Agency to Collect your Debt?

Not every debt portfolio deserves a collection agency as debt collectors usually don’t return the full amount they collect. For this reason, you have to make use of your internal workforce to start collecting your debts when they start piling up.

But there are times when debt collection simply goes beyond what your general employees can handle, after all, they were not employed for that situation. Again, designating some of your employees to make debt collection calls can starve you business of essential work hands.

These are some of the ways to know that your debt issues has passed what you can comfortably handle in-house.

  • When a customer does not respond to your letters or attempt to collect the debt. There is a greater chance they will refuse to pay when there is no payment history with the customer.
  • Failure to pay according to terms of the contract, some consumers want to pay at their own suitable time rather than follow the terms of contract.
  • The consumer makes unnecessary complaints and excuses.
  • The customer has a history of financial irresponsibility.
  • A customer denies being responsible for the debt.
  • The first thing that marks an indication that you need external help with your debt collection is when your debtors start getting to tricky to handle. Debt collectors know how to deal with tough debtors who always seem to avoid payment. They are specifically trained to deal with tough debtors and have the knowledge, tools and experience to get the job done where a business’s credit department simply can’t.
  • Another thing that may raise a red flag that you need external help is if your debts are taking too long to collect. Most debtors usually pay up what they owe after the first few reminders. Any person that refuses to pay up after that may need tougher procedures which you may not be able to handle.

Again, the longer a bill goes unpaid, the less likely it is to be collectible in the future. Rather than let the credit department attempt to get payment for a long period of time, you’ll likely see a larger return if you send the accounts to a collection agency.

  • Again, there may be cases where your debtors may appear to be untraceable. It is strongly recommended that you send such account to a collection agency, especially when the credit is quite substantial. Debt collectors have extensive resources available to help them track down debtors who have gone into hiding to avoid paying their debts, and are much more likely to find a missing debtor than a company’s credit department. Once they have found the person, they will know how to apply pressure on the debtor to ensure payment.
  • There are a lot of federal and state laws that govern the debt collection industry, and well-informed consumers won’t hesitate to sue if their rights are violated. If you aren’t familiar with these laws, collecting debts becomes a minefield of potential legal problems.

This goes to show that you should not even be collecting debts by yourself beyond the reminders that you are allowed to give. Third-party collectors are well versed in both federal collection laws and the laws governing each state in which the company holds a license. Allowing a professional collector to recover your unpaid debts on your behalf eliminates the legal risks involved with attempting to collect debts on your own.

  • Collection agencies make records of all communication with debtors. Should you decide to sue a debtor in the future, the collection agency’s thorough documentation demonstrates to the court that you put forth extensive effort to recover the debt. If you claim the bad debt as a tax deduction, you’ll need this documentation for your tax files. In the event of an audit, the IRS wants to see that you exhausted all possible options before writing off the debt and claiming it as a deduction.

If after all efforts to get through to the delinquent customer has proved futile, further attempts are left to a professional debt collection agency that knows their way around such customers and can retrieve the funds; if not all, at least a portion of what is owed.

When looking for a collection agency, ensure you research to verify that the company is legitimate and accredited, has positive ratings and review and abides by the Fair Debt Collection Practices Act (FDCPA).

How to Find and Choose the Perfect Debt Collection Agency for your Business

There are lots of debt collection agencies, some handle consumer debt collection (B2C), while some specialize in commercial debt collection (B2B), however many agencies handle both.

Consumer debts are incurred by people in their personal lives, such debts include car loans, credit card debts, medical bills, mortgages etc. Consumer debts are regulated by the Federal Trade Commission (FTC) and the Fair Debt Collections Practices Act (FDCPA). These agencies regulate what debt collectors are required to do and not to do to collect on debts.

In choosing a right debt collection agency, you should ask the following questions first:

  • Does the agency specialize in my industry?
  • Is the agency insured?
  • Is the agency capable of managing debts?
  • What is the agency success rate?
  • Are they well respected?
  • How do they communicate with me based on their findings?

There are factors to consider in choosing a perfect debt collection agency, they are:

7 Factors to Consider Before Hiring a Debt Collection Agency

a. Determine if they fit your needs: it is important that you research a collection agency to know if it fits with your specific business needs. Some agencies deal with business of certain sizes (small business and enterprises) some excel in securing funds from large companies while others do well with small businesses.

Some focus on a specific region (local, national, international), some offer extra services such as billing, credit reporting, pre-collections, and account receivables consulting. It is necessary to identify with an agency well suited for your business needs.

Once an agency fits your needs, give all necessary information about the account to enable collection. Such information should include:

  • The name, address and telephone number of debtor
  • Name of debtors spouse, if applicable
  • Debtors and spouse occupation or last known occupation and phone number.
  • Name of relatives, friends, neighbors, business associates, clients, and references.
  • Summary of any disputes
  • Date of last transaction, order or payment
  • Cellular phone, fax, e-mail address
  • Details about the purchase or transaction including the date.

All these information should be provided to the collection agency to make the collection process faster and easier.

b. Determine if they specialize in your industry

Some agencies specialize in specific industries such as health care, insurance, utilities, credit cards, mortgages while some service a range of industries. It is important to hire a collection agency with a good track record in successful debt collection in your industry. The agency should be familiar with terminologies in your industry as well as rules and regulations binding your industry with government laws.

c. Verify the agency’s reputation and legitimacy

Different regions, states, and localities have rules for debt collection. Ask for referrals from your attorney or trusted business associates in your industry. Find out their success rate and confirm if the agency is bonded, licensed and adheres to the rules of the Fair Debt Collection Practices Act. Make sure it is registered under an association such as Association of Credit and Collection Professionals (ACA).

ACA is a nonprofit organization that establishes ethical standards for the industry and requires its members to adhere to them. Check the Better Business Bureau (BBB) for ratings on the agency you might be considering. Analyze the agency’s reputation on how it treats debtors; do they treat debtors with respect and dignity or otherwise.

d. Inquire information about the clients of the debt collection agency

Ask the agency to provide you with a list of current and past clients. Contact these clients and ask their opinion on the agency’s debt collection service, their weaknesses and success rate. Check for reviews and comments about the agency on google. Find out the tactics and technologies the agency uses in its collection efforts. Do they have properly trained, experienced and skilled negotiators in the agency?

e. Determine if the company is insured

A reputable agency should have errors and omission liability insurance (E&O). This insurance provides coverage for claims brought by consumers for improper conduct, such as harassment, threats.

When choosing a collection agency, integrity and reputation should be put into consideration. An agency that uses dubious means to retrieve debts can damage your reputation, costing you active and intending customers, in some cases your company can face litigation for a collection agency misdeeds. It is important to hire a collection agency that abides by the dos and don’ts of the Fair Debt Collection Practices Act (FDCPA).

f. Do They Adhere to the Fair Debt Collection Practices Act

All consumer collection agencies are to comply with the federal laws regulating the industry. You must be conversant with the law so you know the agency you hired abides by the precepts of the FDCPA. Some of the rules include;

  • You cannot call debtors before 8 a.m and after 9 p.m, without the consent of the debtor
  • You cannot call at inconvenient places such as a board meeting
  • the debtor’s attorney must be contacted
  • they can use a third party (family, friends) to contact debtor only once and the reason must not be stated to the third party
  • You must not threaten, harass, harm or resort to violence
  • You must not make a false statement that the collector is an attorney
  • You cannot send documents that look like a court orders or legal documents.
  • do not use unfair practices
  • You cannot conceal identity
  • disregard a written request to cease contact

g. The Debt Recovery Strategies Employed by the Collection Agency

A perfect collection agency uses a number of tools such as technology, attorneys, trained and experienced staff to recover debt.

  • Skip-tracing services help to locate customers that are hard to find. It is in the form of a database that allows the collection agency to find debtors who have moved without leaving a forwarding address. Without this technology, it will be difficult locating a debtor who has moved or fled from the address, which makes the chance of recovering the debt very slim.
  • online access helps to monitor the account, submit new delinquent accounts, communicate with the agency and run reports on the progress of collection.

When choosing a collection agency after much research and reviews, the final decision should be based on these factors:

  • Rates and contracts
  • Service limitation
  • Skip-tracing services – a method of tracking down hard to find people
  • Litigation services
  • Reporting
  • Online features – including a client portal and status updates
  • Locations services available for both local and international clients
  • Industries served
  • Customer service – testimonials of satisfied clients
  • Better Business Bureau ratings and accreditation
  • Customer reviews and complaints

9 Steps to Hiring a Perfect Debt Collection Agency for your Business

Here are a few things you should consider when hiring a debt collection agency to handle your delinquent accounts.

  1. Conduct thorough research

There are many debt collection agencies, and many of them specialize in certain areas of the business. You should choose an agency that has experience in collecting debt for the size and type of business operation you run. If the people who owe you money are individuals, go with a debt-collecting agency that specializes in collecting consumer debt.

You need to find out the collection agencies that deal in your kind of business so you don’t waste your time contacting the wrong agency.

As part of your research, you need to make sure the agency you are planning to settle with is bonded, licensed, and adheres to the rules of the Fair Debt Collection Practices Act. Know that different localities and states have different requirements so make sure that your agency fulfils this requirement.

Find out how many years a collection agency has been in business. A well-established agency is likely to have a good reputation. Collection companies highly-regarded in the industry are often affiliated with attorneys who provide legal counsel or initiate litigation against debtors when the situation warrants.

2. Ensure they are able to trace run away debtors

It is a sad fact that some debtors skip town when the heat is turned on. It is for this fact that you need to hire an agency that is able to trace them. The Internet offers both free and pay sites that can enable you trace people, but collection agencies that use pay sites usually have more success.

Good collection agencies use what is known as “skip tracing”, which means that they use and have access to several databases that allow them to locate a debtor that has left no forwarding address.

This is especially important if you’ve been personally contacting your debtor and have been routinely ignored. An experienced debt collection company will have access to multiple databases it can use to locate debtors who have disconnected their telephone or moved and left no forwarding address. A good skip-tracer is like a detective, they are rewarded when they find their subject.

3. Make sure they are insured

There are cases where debtors sue their collection agencies for one infraction or the other, the majority being that the debt collection agency uses aggressive tactics or that the debtor feels the agency acted in bad faith. With this being the case, you have to make sure that you won’t be held liable for hiring the agency.

You should as a rule get proof of insurance from your debt collector in the unlikely event that your debtor takes you both to court. The insurance required in this instance is called “Errors and Omissions Insurance” and it is held by good debt collection agencies as protection.

Ask to see an insurance certificate proving that the agency has E & O insurance. Request that the agency have its insurance company mail a Certificate of Insurance directly to you. If an agency is bonded, request proof from the insurance company that bonded the agency. As a rule, insurance company underwriters only write bonds for parties where the probability of a claim being filed is unlikely.

Although most states require that debt collection agencies be licensed before they can collect debts in that state, but not all do, so you should verify that an agency is licensed in your state or any other states where it must collect from debtors before you hire them.

4. Check their references

Nothing beats talking to people who have used the collection agency you want to settle with finally. Check the references of several collection agencies before hiring. Ask each agency to provide you with two or three references from other businesses in your industry that have used its services. When contacting a reference, ask how long the business has been using that agency for collecting bad debts.

5. Training

Anyone can pick up a telephone and make telephone call to a debtor, but it takes a trained professional to collect money. This is why you should look for a collection agency with the required training. A true professional collector should be trained by the American Collector’s Association and continuously re-trained on all State and Federal laws and guidelines. This knowledge is very beneficial so that your collection agency does not further compound your problems.

A good agency will also require its collectors to have at least some college education or a background in finance. It will further train its employees to comply with the Fair Debt Collections Practices Act requirements.

6. Ensure their fees are within your budget

One of the things to find out when shopping for a debt collection agency is their cost of service. Debt collection agencies charge their separate fees, and you have to find out if their charge is something you can afford. This fee will most likely be based on the age and volume of your receivables. The common fees being charged by debt collection agencies include;

Flat Fee: A straight-forward cost usually associated with “pre-collection” fees and usually fairly small. This flat fee is generally offered early in the debt collection process.

Contingency: This is where most debt collecting agencies make their monies from. The collectors use a “No Collection – No Fee” model and charge somewhere between 25% and 45% of the total amount for collection, depending on the particulars of the account (such as how old it is, how many contacts have been made, etc.). This is where their fees tend to vary.

This should not in fact faze you as you should know that you can never collect the full value of the money being owed to you. The trick is to hire an agency that would give you something reasonable after the debt has been collected. For this reason, it is recommended that you exhaust your other options before hiring one, like writing your own Demand for Money Owed first.

7. Membership

Another thing you may have to look into is if the agency holds membership of some related professional organizations. You may have to find out if they are part of state or federal trade associations for credit and collection professionals such as ACA International.

They may not have to be members of the Association of Credit and Collection Professionals, but it lends credibility to third-party collection agencies within the industry. You can also find out if an agency is a member of a local Chamber of Commerce that you can contact for a reference.

Look to hire an agency that has an established reputation for complying with the Fair Debt Collections Practices Act. Check with the Better Business Bureau to find out if an agency is a BBB accredited business. You can also check the Federal Trade Commission and your state attorney general office for any complaints of misconduct filed against a collection agency.

8. Hire

Once you are done with all your investigations and you are satisfied with a certain agency, you can now go ahead to hire them. You should then turn over all your delinquent accounts to them as well names, addresses and every other thing they need to know.

You should note that after turning their accounts to a collection agency, some customers may call you. You must be careful here because all calls and contacts must be referred back to the agency. If the debtor calls you, explain to them the account is with a collection agency and they have to call them. If you receive mail or payments from the debtor, forward them to the agency.

Again, these customers may come back to you for services or products after they have paid a collection agency. You can sell to them if you want, but do not extend credit to them because they have ruined the trust involved in the buyer-seller relationship. You should only accept cash from them. That customer cost you money when they didn’t pay their bill; if they continue to purchase from you and have to pay cash, you might recoup your losses.

9. Payments and remittance

As the debts are being collected, the collection agency would send you payments once a month or twice a month depending on how the agency operates. If your collection agency offers online updates on the payments and status of your accounts, you can search online or even call them for an update.

Remember to be patient with you agency because they do not have a time frame that they can collect your debts on, and they offer no guarantees that those debts would be finally collected. So you have to trust them to do their best because their payments rest on how hard they work.

How Much Does Debt Collection Agencies Charge for Services Rendered?

Be sure to check out the charges of the agency. Ask for sample invoice and sample reports, a copy of their service legal agreement. Compare fees of different collection agencies and choose the one that best suits you.

Collection agencies cost vary according to the mode of the business and variety of factors like the volume of business you provide, the amount of debt to be collected, work required to obtain debt and if attorneys will be involved. Typically, fees range from 20% to 50%.

However, some agencies charge a flat fixed rate while some charge by the percentage of debt recovered; the older the account, the higher the percentage. Commercial debt is less expensive to recover and falls between 20% and 25% collection rate; while consumer debt cost more to recover, it ranges between 30% to 50%. Discounts are applicable to each debt.

Debt collection agency’s work with two main types of fee structure; contingency fee and fixed fee.

i. A contingency fee is the most common type, it is a form of tiered pricing that only applies when an agency collects. (Collection agencies do not charge until they have collected your debt). This type of fee is charged as a percentage of the collected debt and they are negotiable. In addition to the pre-account fee, litigation and court fees may apply. Before registering your delinquent account with the collection agency, make sure you get the best deal:

  • Does it charge fees aside from the standard account percentage?
  • Does it offer a discount based on a large volume of account?
  • Does it offer a volume discount for litigation?
  • Does it offer additional features for continuity?

Contingency fee ranges from 20 to 50% depending on the size of the debt. There are factors that determine contingency fee such as;

  • The age of an account – the older the account the higher the fee
  • The average balance size of account – the smaller the balance, the larger the fees
  • The volume of accounts transferred over to an agency – fees might be lower for larger account volumes
  • The industry served – approach to debt collections varies, each industry has different volumes, averages, and ages of accounts receivable.

ii. A fixed fee is a type of fee that is paid upfront and you keep 100% of whatever the agency recovers for you. Regardless of account size, businesses pay a consistent rate for packages that include either first or third-party collection services.

Although not common, but some agencies charge using the fixed rate system. This straight forward fee cost $10 to $15 per account. An agency uses this type of payment when the debt is less than 90 days old or just over 90 days old.

iii. Variable Cost is a combination of both contingency fee and fixed fee pattern. This payment pattern is usually set aside for clients with large volumes of accounts.


Dealing with debtors can be frustrating, slow, mentally taxing, and it can drain the little resources you have to run your business. When you have no other choice, it is best to hire a debt collector instead of simply letting your debtor get away with not paying you.

Remember, the longer you wait before sending a claim to collections, the less likely it is that the agency will be able to successfully collect on the account – so don’t waste time when making a decision. Letting a collection agency manage debt will allow you to focus on your core business activities, instead of trying to manage debt collection efforts by yourself.

Not only that, your employees will be able to focus solely on day-to-day operations and achieving goals, instead of tracking down debtors.