When should I use a collections agency and how much do they usually cost?

If you are an individual or small business owner and you don’t have staff to call your customers regarding collecting unpaid debt, you may want to look into hiring a collection agency to collect the debt. You have a better chance of receiving the money by using a collection agency because your debtor will take the matter more seriously.  Collection agencies usually charge between 15% and 50% of what they recover. You will still end up with more money than if you try to collect the debt on your own.  When selecting a collections agency, you should ask the following questions: 

  • Do they carry errors and omissions insurance in case they make an error?  
  • How they plan on going about collecting the debt-writing letters, telephone calls or both? 
  • Their results rate?
  • Do they use skip tracing to locate the debtor if they moved and left no forwarding address?
  • Amount of their fees. You should check with a few agencies to compare fees as well.
  • Ask for references.
  • Look for an agency that works with individuals or small businesses.

Some collection agencies will purchase a group of debts for a percentage of the amount owed. Typically that amounts to 1% to 5% of the face value of the debt.  When they collect, they make a profit on the difference they paid for the face value of the debt and what they collect from the debtor. 

If you decide to sue your creditor, you should speak with a debt collection attorney to assist you. The attorney can explain your rights and legal remedies. The attorney will represent you in court and help you collect on any judgment you obtain against the debtor.  

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