Collection Agency

What is a collection agency?

A collection agency is a third party that pursues payment on delinquent accounts receivable. Agencies either work on contingency, taking a percentage of collected amounts, or purchase debt outright at a discount. Turning accounts over to collection is typically a last resort after internal collection efforts fail. It signals the end of the normal customer relationship.

When to use collection agencies

Consider collection referral when accounts exceed 90 to 120 days past due with no response to repeated contact attempts. Smaller balances may not justify the effort even at significant aging. Some businesses write off amounts under a threshold rather than pursue collection. The decision depends on the amount, client relationship value, and likelihood of recovery.

Choosing and working with agencies

Vet agencies for compliance with debt collection laws. Contingency rates typically range from 25% to 50% of collected amounts, varying by account age and size. Provide complete documentation when referring accounts. Stay informed about agency communications since their actions reflect on your business. Ensure they follow the Fair Debt Collection Practices Act.