The cost of using a collection agency depends on several factors, including the type of debt, the age of the debt, and the agency’s pricing structure. Collection agencies typically charge in one of two ways: contingency fees or flat fees.
Contingency Fees (Percentage-Based Pricing)
Most collection agencies operate on a contingency fee basis, meaning they only get paid if they successfully recover the debt. The agency takes a percentage of the amount collected, which can range from 15% to 50% depending on various factors:
- Newer debts (less than 90 days past due): Typically 15% to 30% of the collected amount. For instance, New York Institute of Technology notes that if an account is forwarded to a collection agency, the additional fees may constitute 33% to 50% of the principal amount due.
- Older debts (over six months past due): Often 30% to 50%, as these debts are harder to collect.
- Small business or consumer debts: Tend to have higher fees than large corporate debts.
- Legal action required: If a case needs to go to court, fees may exceed 50% to cover legal costs.
Flat Fees (Fixed Pricing)
Some agencies offer flat-fee pricing, where businesses pay a one-time upfront fee for the agency to attempt collections. This option is usually less expensive and may range from $10 to $50 per account. However, this method is generally used for low-risk debts or early-stage collections where recovery is more likely.
Additional Fees
In some cases, agencies may charge additional fees for extra services, such as:
- Legal fees if litigation is necessary.
- Skip tracing fees to locate hard-to-find debtors.
- Credit reporting fees to report unpaid debts to credit bureaus.
Choosing the Right Collection Agency
Before hiring a collection agency, businesses should carefully review the contract terms, success rates, and fee structures. A reputable agency will provide transparent pricing and ensure compliance with the Fair Debt Collection Practices Act (FDCPA).
If you’re considering using a collection agency and need guidance on selecting the right one for your business, contact us today for a consultation. We can help you navigate your options and make an informed decision.
