Your Collection Agency’s Net Back and How This Impacts your Business
Unpaid debt can affect consumer prices, business performance and the overall financial foundation of many companies. A third-party collection agency is integral to the financial health of many businesses, no matter how big or small they may be. But how do you know if your agency is the best fit for your business?
One of the first questions I am asked when a business calls me needing help with unpaid patient/consumer balances is, “What is your fee?” There are significant differences between collection agencies. The fee you pay your collection agency is not nearly as important as the services they provide and the money they return to you.
For example, does your collection agency specialize in your industry? Do they make outgoing telephone calls or just mail letters or send emails? Do they provide skip tracing services? Do they provide you with 24/7 web access to your accounts? Are they transparent? Do they report and update your unpaid accounts to the credit bureaus? Do they comply with current collection laws and regulations? Is your collection agency compliant? Do they charge you up-front fees?
The national average recovery rate for collection agencies nationwide is ~16%. The reason it is so low is that most agencies invest very little into working each account. Naturally, there will be accounts easily collected with a few phone calls and letters. But what if your agency invests significantly more time and effort into each account resulting in an average recovery rate of 30-45%? This increase in recovery is often integral to a business’s financial health.
Let’s say you do a comparison and place $100,000 of A/R with your current agency and another $100,000 of A/R with an agency you are considering. Let’s also say your current agency offers an extremely low fee and the other agency you want to compare charges twice the amount. Most would say, stick with your current agency, why pay twice as much for a similar service? But that is not always the best business decision for your company and here is why…
Example: Placement of $100,000…
| Agency Comparison | Recovery Rate | Fee | Net Back to You |
| Current Agency | 16% | 15% | $13,600.00 |
| New Agency | 28% | 30% | $19,600.00 |
In this example, your current agency only recovers $13,600 compared to the agency who invests significantly more into each account, which recovers $19,600. This is an additional $6,000 back to your company. Though the comparable agency’s fee is twice the amount of your current agency, the amount of money recovered for your business is significantly greater. It’s often as the adage says, you get what you pay for.
I always urge any business to research your current collection agency, understand how they are operating and what kind of work standards they are providing for each of your delinquent accounts. There are many collection agencies out there so make sure you do your research!
To find out more about how TSC Accounts Receivable Solutions can help you maximize your recovery of lost revenue, please call us at (760) 444-5702.