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What is a debt collection agency?

If an invoice is overdue, businesses can hire a debt collection agency to act as an intermediary on your behalf to collect that debt. Typically, collection agencies will charge you a percentage of the amount collected. In return, they will do the following:

  • Send letters to your customers by email, mail or fax informing them of debt and late payment
  • Call the customer to request immediate payment
  • Skip tracing to locate customers who have closed or moved operations
  • Litigation
  • Debt settlement

Debt collection agencies can aggressively pursue unpaid debts, but they must comply with federal Fair Debt Collection Practices Act, and agencies are prohibited from certain tactics.

What is the difference between a debt buyer and a collection agency?

When you use a collection agency, you retain ownership of the debt. You simply hire the agency to act on your behalf to collect the amounts owed.

In contrast, a debt buyer is a business that buys you debt. Once you sell it, you no longer have any access or control over the account. The debt buyer will use their own means to collect the money owed, including tactics such as settlement or even litigation.


Using a collection agency gives you more control over unpaid debts. And, with a reputable company handling the process in a professional manner, it is possible to collect the money owed to you while still retaining your customers.

When you sell your debt to a debt buyer, you lose that control and you will likely lose a customer as well. However, the trade-off is that you will get an upfront payment. If the customer is no longer a viable customer, it may be worth selling the debt to collect some of the money owed to you.

How to choose a collection agency?

When choosing a debt collection agency, it is important to do your homework. Consider the following factors:

  • Fees and Commissions: A fee structure can include a flat fee per account, percentage rates on contingencies, or a mixture of the two.
  • Minimum debts: The collection agencies listed here can collect on an account as low as $ 200, but often have minimums of several thousand dollars or more.
  • Success and recovery rate: Ask for a business’s success rate and do the math to see if the fees are worth what you get in return.
  • Customer service: Check online reviews for company customer service reports.
  • Accreditation: The best debt collection agencies are licensed in your state and accredited by professional associations such as the Association of Credit and Collection Professionals and the International Association of Commercial Collectors. They are also members of these organizations.
  • Dispute: You can research enforcement actions taken by the Consumer Financial Protection Bureau (CFPB) against debt collection agencies by searching for the company on the CFPB website.

How much does a collection agency cost?

When hiring an agency, keep in mind the different cost structures which include:

  • Fixed costs: For flat fee collections, you will typically pay between $ 10 and $ 15 per account.
  • Commissions: For companies that charge provident fees, you should expect to pay 25-50% of the total amount of debt collected.
  • Installation or introduction costs: Some companies charge installation or introduction fees, which can increase your costs.


How we choose the best collection agencies

To select the above collection agencies, we searched for 15 domestic companies. The criteria for measuring each included minimum debt, fees and commissions, success rates, accreditation, and inclusion of additional features. The most important factor in determining whether or not an agency was included in our list was fee transparency. Agencies were immediately eliminated if their fees were unclear.

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