How do collection agencies work?

Written by: Momie Tullottes

If your business needs to recover client debt, you may be considering hiring a debt collection agency. Before deciding whether you'll use one or not, it’s important to ask yourself: how do debt collection agencies work? It’s important to understand the various fees involved in working with debt collection agencies, as well as reasons that a business would benefit from using an agency.

Understanding how debt collections agencies work

Businesses hire debt collection agencies to recover past-due debts for goods or services provided. As experts in debt recovery, collection agencies often have a proven track record of retrieving the money their clients are owed. Debt collection agencies work exclusively on debt recovery, allowing you to focus on running and growing your business.

Why use debt collection agencies?

A business like yours may look at debt collection agencies for a variety of reasons.

First, you want someone with a proven track record in recovering past-due debts. This is because clients habitually respond quicker to a debt collector than to the business they’re dealing with. When a debt moves onto collections, the client knows that it’s one step closer to being reported as debt on their credit report (if it hasn't been already). This prompts companies to pay up immediately.

Also, most clients want to avoid being summoned to court which is how collection agencies may proceed if the debt can’t be settled through traditional means.

What type of fee structure do debt collection agencies follow?

There are various fee structures depending on the particular debt collection agency used, as well as the overall value of the debt.

For smaller debts, it would be wise to choose between collection agencies that will charge a flat fee rate. If you’re waiting on larger debts, you may have a few options. Debt collection agencies can either take a percentage from the debt after they collect, or purchase the delinquent account outright from you and pursue the funds according to their own schedule.

Choosing between different debt collection agencies

When choosing between debt collection agencies, ask a lot of questions to make sure you understand how each of the debt collection agencies work.

You want to choose a company who is open to following your company's practice in dealing with clients professionally and respectfully. The company must also adhere to federal and state collections practices.

The best way to find different debt collection agencies is to research multiple companies to see who offers the fairest deal. Use BuyerZone’s free request for debt collection agency price quotes to get connected to different agencies near you.