Unpaid debt can affect consumer pricing, operational performance, and the overall financial stability of many businesses. For organizations of all sizes, third-party collection agencies often play a role in addressing delinquent patient or consumer balances.
When businesses begin evaluating collection support, one of the first questions frequently asked is, “What is your fee?” While fees matter, they are only one component of understanding how a collection agency may affect your bottom line.
Looking beyond the fee percentage
Collection agencies can differ significantly in how they operate. In many cases, the services provided and the results achieved may have a greater impact than the stated contingency rate.
- Does the agency specialize in your industry or account type?
- Do they actively place outbound phone calls, or rely primarily on letters or emails?
- Are skip-tracing tools used to locate updated consumer contact information?
- Is there secure, 24/7 online access to account activity and reporting?
- Are account updates and reporting transparent and timely?
- Does the agency comply with applicable federal and state collection laws?
- Are there any upfront or administrative fees?
Recovery rates and net back
Industry data often cites an average recovery rate of approximately 16% nationwide. One contributing factor may be that some agencies invest limited time or resources into each account. While certain balances resolve quickly, others may require more consistent follow-up and effort.
In some cases, agencies that invest more heavily in account-level work may achieve higher recovery rates. Even when paired with a higher contingency fee, this can result in a greater net return to the business.
Illustrative comparison
Consider a simplified example where a business places the same amount of accounts with two different agencies:
- Agency A: 16% recovery rate with a 15% fee may result in approximately $13,600 returned on $100,000 placed.
- Agency B: 28% recovery rate with a 30% fee may result in approximately $19,600 returned on $100,000 placed.
Although the second agency charges a higher fee, the overall net back to the business may be meaningfully higher due to improved recovery performance. Results will vary by portfolio, account age, and consumer demographics, but the example highlights why fee percentage alone may not tell the full story.
Evaluating your current approach
Businesses may benefit from periodically reviewing how their current collection partner operates, what standards are applied to account work, and how results compare to industry benchmarks. Taking time to evaluate these factors can help ensure alignment with long-term financial goals.
If you would like general information about collection strategies or recovery performance considerations, you may contact TSC Accounts Receivable Solutions at (760) 444-5702.