What Does Debt Collection Cost You, as a Creditor?

Debt Collection for the small business can be a difficult and agonizing decision to implement.

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Debt Collection Cost

So, you’ve sent your demand letter to a firm that is substantially late on an invoice payment and or torn between writing the debt of and debt collection services; in fact, you have sent several letters to the firm in arrears without a response or offer to start a payment plan.   Your debt collection efforts seem to be without reward.  Let’s face it; the offending firm member aren’t of a mind to pay you.  You could go to court and get a judgment against the offending firm, but collecting on a judgment can involve substantially more legal fees and you have become downright disgusted with the whole matter.  At this juncture in would seem that you may never receive payment for the goods or services, you provided your client.  They simply have decided not to pay.

What can you do?

In some instances, a debt collection firm may be your best alternative.  The debt collection process may cost you some money, too.  As a product or service provider, you should be well acquainted with how a debt collection company charges you for their services.

Let’s look at some of the actual costs you can expect to pay should you decided to go the debt collection route:

  • Percentage of Collected Debt: If you hire a collection agency, they might agree to retain 30% of the debt collected, which means if they are only able to recover 60% of your debt, 30% goes to them. For instance, on a $100 debt, the collection agency fee of 30% means they get $30 even if they only collect $60.
  • Buy the debt: If the collection agency buys the debt from you, they will probably buy it at a very low cost. Example: If you are owed $30,000 from a client, the debt collection agency may buy it for as low as $10,000. It really is your choice–would you rather take the $10,000 now and get rid of the client, or would you rather take the trouble of negotiating directly with the client?
  • Finally, some debt collectors take accounts on a “per account” basis and have some sort of guarantee as to what proportion of the debt are collected vs the amount you paid. This system virtually assures that your debt collection is substantially lower.

Your choice in debt collection matters depends solely upon your confidence in the collection agencies ability to collect the debt and your personal preference for getting the money you have laid out and the potential cost of collecting that money.

1 thought on “What Does Debt Collection Cost You, as a Creditor?”

  1. I can see why confidence would play a major role in debt collection. If I were to own a business, I would find it to be extremely important in order to get the money that I’m owed. It seems like a great help, so that you could focus on other matters while resting assured that you will receive your compensation.

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