Most collection agencies work on a contingency basis – they only get paid on amounts that are collected. If they don’t collect anything, then there is no charge. It is difficult to justify using an agency that charges an upfront fee or minimum fee when you have so many to choose from that work purely on contingency.
Some debt collection agencies have a flat contingency rate for all claims. Most have tiered contingency rates.
Sample Tiered Contingency Rates
Agencies that tier their rates by size recognize that the level of effort required to collect requires the ability to earn a certain amount, regardless of the size of the claim, so higher rates are needed on smaller claims. Collection agencies that tier their rates by age recognize that older claims have a much lower chance of being successfully collected, so a higher rate is needed to justify the effort on older claims.
Want to see actual rates from dozens of collection agencies?
Based on the information you provide in the Get A Free Quote form, we’ll either display our rates or display information on other reputable collection agencies that meet your specific requirements. The Kaplan Group handles only certain B2B claims and we are pleased to provide referrals for consumer and smaller B2B claims that we do not handle. These referrals include contingency rates, contact information, collection agency qualifications and specialties. These collection agencies charge from 18% to 50% of the amount collected based on a variety of factors.
Likelihood of Collecting Based On Age of Receivable
The chart above shows the likelihood of collecting a debt based on age of the receivable. The overall success rate declines over 1% per week, so delay is very expensive for creditors.
The Kaplan Group tiers rates based on size so we can justify a high level of effort (see How We Work) for each claim regardless of size or age. Using this approach, we have an 85% success rate on large viable claims and 76% success rate on small (under $10,000) viable claims. For our collection agency, which handles only claims against businesses and not consumers, it doesn’t matter if a claim is 3 years old as long as the business is still open and financially viable. We’ll do what it takes to collect your money, although it generally is harder to collect the older the claim.
Success Rate Is More Important Than Contingency Rate
The contingency rate is only one factor in the cost equation. The other factor is the agency’s average debt collection success rate. Here is an example which should help you understand the concept:
Comparing Success And Contingency Rates
This example shows why contingency rate alone should not be the determining factor in choosing a debt collection agency. Your evaluation of which collections agency will put in the best effort to collect your money and therefore have the best chance of collecting is more important than the contingency rate. While Agency A in this example has a higher contingency rate, their overall higher success rate more than compensates for the higher fee on each dollar collected.