How much does debt collection cost?
You may have been wondering if your business can afford to outsource your debt collection needs to a professional agency. The truth is, it’s usually a financially savvy decision. Here’s a quick breakdown of how debt collection agencies usually charge—and why you may even find yourself getting your debts collected for free.
Terms and conditions
There’s no such thing as a free lunch and of course you’re right—a debt collection agent won’t work for you for free. However, it is true that your business may not have to absorb the cost of your debt collection activity, as you can legally insert clauses to recover all fees into your terms of trade.
When your terms of trade have been well written and clearly explained to clients, it’s possible to include a clause to specify that if accounts are unpaid and debt collection necessary, the debt collection fees will be recoverable from the client. When including such a clause in your terms of trade, your client must sign off on the terms before the business transaction takes place.
‘No recovery, no fee’ service
Many debt collection agencies offer a ‘no recovery, no fee’ service, meaning you only pay if the monies are recovered, with the fee deducted from the recovered debt. This is a particularly attractive option in cases where you are considering writing off a debt.
Annual fee/ongoing service
If you need regular assistance from a debt collection company for either slow payer management or debt recovery, it may make more financial sense to enter into an annual fee or ongoing service arrangement. This will obviously depend on the size and number of debts outstanding, however paying a debt collection agency an annual fee typically entitles you to a lower percentage commission for each debt collected. Depending on your unique situation, a professional debt collection company will advise the best course of action that will make it economical for both parties – as their main objective is to get your bad debts recovered as fast as possible.
Agency rates
Prices range greatly and will depend on factors like the size and age of the debt, which will determine the percentage of the debt the company will charge.
Typically, smaller debts attract higher fees as the amount of time spent chasing the debt may well be the same as it would be for a large debt but with less reward for the agency.
Similarly, long outstanding debts also attract a higher fee as the chance of recovery is lower, but the effort expended to collect is not. Delaying debt collection becomes expensive and industry reports suggest the overall success rate of collecting on a debt declines more than 1% each week it remains outstanding.
Selecting an agency
When deciding on the right debt collection agency, you’ll want to evaluate which agencies put in the best effort to recover your funds. Ask about their success rate, which can be more important than the amount of commission charged. There’s no point finding an agency offering really low commissions if that agency has a woeful success rate. Don’t be afraid to ask questions and shop around!
When it comes to professional debt collection, it’s important to consider the commercial realities of the time it will take you to chase outstanding debt and the likelihood of success. With various options available to manage the cost of debt collection, it could be one of the best financial decisions you make for your business.
Need help chasing outstanding accounts? Please call us today on 1300 136 271 to discuss how our affordable debt collection services can assist your business.