Debts are like the villains of the financial world! While every business must run its operations, failed debt collections are the major precursors to interrupted cash flow, eventually leading to bankruptcy. And this is especially applicable for small and medium-sized businesses as they don’t have any means to chase down late payments. This is where a commercial debt collection agency steps in. Their professional expertise makes them collect outstanding debts without hampering business-client relationships.
However, before passing on the responsibility to a collection agency, it’s better you know the cost of hiring such an agency. This blog explores the costs of hiring debt collection services in Houston, Texas. And going through this will help you make an informed decision before hiring such an agency.
What are the Two Main Fee Structures of Debt Collection Agency?
Before diving into the expenses, let’s understand the two main fee structures that a commercial debt collection agency works upon:
- Contingency Fee of Debt Collection Agency
This is one of the most common fee structures that debt collection agencies like Nelson Cooper & Ortiz, LLC usually work on. Contingency fees mean you only pay the agency if they are successful in recovering the debt. And the fee is a percentage, usually 20- 40% of the total debt amount that has been recovered.
For instance, if a client owes you $20,000, and you employ a debt collection agency that charges, say a 25% contingency fee. If the agency is successful in recovering the $20,000, you have to pay them $5,000.
Perks of Opting for a Contingency Fee Structure of Debt Collection Agency
When you opt for a contingency fee structure, the following are some of the perks that you enjoy-
- You pay only if the agency has been successful in recovering the debts. No recovery means you aren’t liable to pay a single penny!
- Owing to the terms and conditions of the contingency fee structure, the collection agency you hire will try to put in their best efforts to recover the debts.
- You aren’t liable to pay any additional upfront fee to the agency.
- Flat Fee of Debt Collection Agency
As per the general rule of thumb, flat fee rates tend to be lower than the contingency rates. And whether or not your debts are recovered, you have to pay this fee in advance to the agency, even before they take any action to try to recover the outstanding.
For instance, if you have debts to recover from, say 20 small outstanding accounts, and hire a debt collection agency with a flat fee structure of $20 per account, you’ll have to pay $400 as the advance upfront fee.
Perks of Opting for a Flat Fee Structure
When you opt for a flat fee structure, the following are the benefits that you enjoy-
- The rates are less than the contingency fee structure. So, you can rest assured knowing that you can have almost the entire debt amount.
- Flat fee charges are not dependent on the amount or size of the debt. No matter how complex a debt recovery might go, your expenses towards the business debt collection agency remain the same.
- You have more control over the process in a flat fee structure. From setting the necessary parameters like the total number of attempts, or collection methods, you get to have full control over the workings of the credit collection services.
What Factors Determine the Cost?
Credit collection services in Houston won’t charge similar fees for every debt claim they pursue. Some might offer feasible rates, while some may charge higher than usual. This fluctuation makes it difficult for small and medium-sized businesses to determine the value of services they are getting in exchange for the money they pay.
Two key factors influence the cost of hiring a commercial debt collection agency-
- The size of the debt
If the amount of debt is massive, it’s going to cost you a considerable amount! That’s because a majority of debt collection agencies work based on a contingency fee structure. So, the higher the amount of debt, the higher will be the cost of hiring the agency, and vice versa.
- The age of the debt
Another major factor that influences the cost of hiring a commercial collection agency is the age of the debt. The longer the time, the tougher it is to recover the debt, and hence, you have to pay a higher amount.
Conclusion
A professional credit service collection agency plays a key role in the debt recovery process. And, as business owners, you need to be aware of the cost structure to make sure that your expenses of hiring a credit collection agency don’t exceed the total debt amount.
