Why is there a need for Collection Agencies?
One of the problems nearly all small businesses face is overdue invoices from their customers who have said they would pay and never manage to get that check in the mail. To get these overdue bills paid the accounts payable clerk may send a seemingly endless stream of invoices and place call after call with little effect. Instead of constantly chasing down customers, some small businesses turn to third-party collection agencies. Collection agencies exist to get this tough exercise out of the hands of the accounts payable clerk and into the hands of professional. A professional collection agent is trained to efficiently collect third party overdue bills and find solutions to debtor’s inability to fulfill their financial obligation.
This system might sound perfectly wonderful, but customers might view the collection agencies as hired thugs; despite the fact that collection agency practices are overseen by the Fair Debt Collection Practices Act, collection agencies are often seen as bothersome, rather than a positive source for debt solution. In fact, collection agencies have accumulated over 300,000 complaints in the past five years.
Do Collection Agencies Overcharge their Clients and Debtors?
Collection agencies usually charge a percentage of the collected invoice; they sometimes charge upwards of 50% of the amount they collect. Collection agencies will often base their fees based on the age the debt. In other words, the longer the invoice has gone unpaid, the greater the fee. For example, if your customer made the last payment 30 days ago, you may be charged 15 percent of the debt’s worth. However, if your customer has not made a payment for six months, you might be charged 40 percent. The age of the debt can be calculated from the last day of activity on the account.