What to do when you acknowledge that some of your outstanding accounts are past due. The most common thing is sending your customer debt collection letters, but usually, they have fallen on deaf ears. After doing some research, you decide you want to try and have a Fort Worth commercial collection agency to pursue your debts. Also known as business to business debt (B2B), these agencies specialize in recovering debt payments owed by one business to another.
These agencies are not typically employees of the creditor or small business attempting to collect from a debtor. Rather, they are third party contractors to the small business and only get paid when they collect on the debt.
A commercial collection agency differs from a consumer collection agency based on who they are collecting from. A commercial collection organization will be collecting from other businesses who’ve failed to pay on accounts, while consumer collection agencies pursue individual consumer debt owed to businesses. While these agencies have a high success rate in the collection, they often charge large sums of money from what you collect from the business debtor, sometimes as much as 50 percent.
Hesitations due to unknown costs may deter businesses from signing on with a debt collection agency, which can further delay collections. The cost of hiring one will vary. Two common payment structures include flat fee and contingency costs.
A flat fee is a fixed fee that is charged upfront in the collections process. Regardless of account size, businesses pay a consistent rate for packages that include the services of either first or third-party collection. This straight-forward fee generally costs $10 to $15 per account.
First-party collections appear to be originating from clients. This method provides letter writing and phone calling services. Each Fort Worth commercial collection agency operates with unique procedures. Letters may identify a consumer’s legal rights, demand payment, request that they contact the agency or creditor, update the creditor on the payment status, address disputes, or inquire about other information.
For consumers who do not respond to first-party collections, businesses can activate third-party collections. This service also applies letter writing and phone calling strategies. At this stage, all communication is clearly stated as originating from a debt collector and or an agency. Both first- and third-party collections letters follow a structured escalation of demand with each letter increasing the
Most Fort Worth commercial collection agencies now use a contingency payment model. Agencies will only charge clients if they successfully collect. The average fee ranges from 25 – 50 percent of the total amount of debt collected per account. Fees are contractually agreed upon.
Factors that determine contingency fees include:
- The age of an account — as consumer debt ages, the likelihood of recovery decreases. Less than half of consumers with delinquent accounts make payments 30 or more days late, the Fair Isaac Corp (FICO) found. Furthermore, FICO states that “approximately three out of 10 consumers have been 60 or more days overdue on any credit obligation and approximately two out of 10 consumers have been 90 or more days overdue.” Due to the increased difficulty of collecting on an aged debt, older accounts generally demand higher fees.
- The average balance size of accounts — depending on the debt collection agency, larger fees will be charged for accounts with smaller balances.
- The volume of accounts transferred over to an agency — fees may be lower for larger account volumes.
- The industry served — with varying approaches to debt collection, each industry has different volumes, averages, and ages of accounts receivable.
