One of the key benefits to working with most collection agencies is that you only pay when they successfully collect on a past-due account. This means if the agency can’t collect money on your behalf, you don’t owe anything. Debt collection agents operate on a commission, usually collecting about one third of the commission.
However, this is not always the case. If you have some small accounts under $500, some collection agencies may require a flat fee to handle those accounts to make it worth their while. But most of the time, it will be based on commission.
Collection agencies earn their money by taking a percentage of the money the debtor owes upon successful collection. This percentage can range from 10% to 50% with the most common percentage being between 25% and 40%.
The amount the agency keeps is typically based on the age and the dollar amount of the claim. The older the debt the more difficult it is to collect and the agency will require a much higher fee to go after that debt. You should factor in how difficult it will be to collect. Certain debts are riskier to collect and therefore require a higher the percentage.
Some agencies will charge you for several other charges related to their collection efforts including fee-based background checks, court costs, filing fees, and long-distance telephone calls.
Before a collection agent works on a single claim, they will write up a contract that details the terms of your working arrangement including their responsibilities, the fees, any additional expenses, and customer service policies.
Be sure to read the contract over carefully for any fine print or contract language that seems confusing. If you notice discrepancies in the contract, make sure the agency fixes the problems immediately before requiring you to sign anything.
Mallory Megan is employed by a collections agency that works with a debt collection lawyer. She also does stories on business and finance, the credit industry and collections agencies.
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