The Best Collection Agency Services of 2021

Collection agencies offer a bevy of services beyond sending demand letters and contacting customers via phone. Some of those features are common across the industry, while others are offered as add-ons. Here are the main services collection agencies offer and why they matter:

SKIP TRACING AND LITIGATION

Most collection agencies provide skip tracing as a standard practice. Skip tracing involves scanning databases, pouring over the internet and using other tactics to find hard-to-track debtors.

If skip tracing and formal demand letters don't work, many collection agencies offer litigation services if you pursue legal action against a debtor. If lawyers get involved, the best agencies won't charge you until the debt is recovered.

ONLINE CLIENT PORTAL AND STATUS UPDATES

Most services offer an online portal, enabling business clients to add newly delinquent accounts, track the progress of current accounts, and access reports. All of that can help you plan your cash-flow needs.

LOCATION CAPABILITIES

Whether you operate locally, nationally, or internationally, the markets the collection agency serves matters a lot. You don't want to work with a collection agency that is not licensed to collect in your state or that doesn't have an international presence. Most collection agencies state on their website which states they are licensed in, but confirm with them before hiring them.

AGENCY COMPLAINTS, REVIEWS AND REPUTATION

Collecting unpaid debt must be approached carefully and tactfully. The way a collection agency treats debtors reflects on you. If they are empathetic and understanding, your customer may be more willing to pay. If they are rude or employ aggressive tactics, your reputation may take a hit. It also hurts your chances of collecting the debt. You want a service that is reputable and honest – one that fights to recover your funds without tarnishing the good name of your company. As you narrow your choices down, ask for references and check them.

CUSTOMER SERVICE

You don't want to have to chase down your collection agency when you have questions or concerns. You want to choose a collection agency that responds to you quickly.

Business owners hire collection agencies at different stages of the recovery process. Some try to collect on their own through several attempts before seeking help. Others move once the bill is 30 days past due. What makes sense for your business depends on how much debt is owed and the situation of your debtor. Is he or she trying to pay it back, or are calls and letters going ignored? Is the debt only 30 days past due or longer? Do you have an existing relationship with the customers?

If you get nowhere, the next step is to send a formal demand letter. This is a written document detailing the debt owed. A formal demand letter can be an effective step in resolving the debt. It's also a requirement in some states if you believe you'll take legal action against the customer. The longer you wait to collect a debt, the more difficult it is to recoup any of it.

If a demand letter fails, it may be time to call in the professionals. When looking for an agency, come up with an amount you are willing to settle for. Collection agencies charge different rates. If you have an idea of what portion you want back, that informs your search. Make sure to verify the company is legitimate and accredited, has positive ratings, and abides by laws like the Fair Debt Collection Practices Act.

It's also worth confirming that the collection agency complies with regulations put in place in 2019 when the U.S. Court of Appeals ruled against the Consumer Financial Protection Bureau's attempt to permit debt collection agencies to send collection notices to consumers by digital means (e.g., hyperlinks, emails and text messages). Some agencies may not comply, which could pose a risk to your business if you work with them.

After narrowing your search to a few credible agencies that serve your industry and location, compare important features like skip tracing, litigation, demand letters, pre-collection, and free final-notice forms. The best collection agencies are highly reputable, have a lot of experience and offer advanced services like an online portal to add your accounts.

WHY SHOULD YOU OUTSOURCE YOUR COLLECTIONS?

When you have delinquent accounts, debtors might ignore your acquisition attempts and refuse payment. While you can make calls and send demand letters, collection agencies have advanced tactics to retrieve your money.

The longer debts go unpaid, the less likely they are to be repaid. If you prioritize outsourcing your collections to the proper agency as soon as possible, you have a higher chance of recouping the full amount.

WHAT IS THE AVERAGE COLLECTION RATE FOR A COLLECTION AGENCY?

The cost of hiring a collection agency varies. Agencies typically charge a percentage fee based on the type of collection (commercial or consumer), the amount of debt to be collected and the volume of business you provide.

Some agencies charge a flat fee; however, most charge a contingency percentage rate of 20% to 50%. Depending on the amount of debt you need to be recovered, commercial debt collection fees are typically 20% to 25% of the sums collected, and consumer debt collection fees are typically 30% to 50% of the sums collected.

If your case goes to court, expect to pay additional legal fees. Your agency will notify you before taking your cases to court, giving you the option to accept or decline. Most agency fees, including litigation, are typically charged after your debts are recovered.

HOW LONG CAN A COLLECTION AGENCY ATTEMPT TO COLLECT A DEBT?

While some collection agencies also operate as billing companies, most begin to collect on accounts that are 60 to 90 days past due. Each state has a statute of limitations, which restricts the length of time a debt can be collected. In most cases, states allow collection agencies to pursue debtors for four to six years after the last active payment on the account.

CAN A BUSINESS BE SENT TO COLLECTIONS?

If a business is past due on its payments, it can be sent to collections. The business then has 90 to 120 days to repay their debt, and if they fail to do so, the creditor can either sue the business or sell the debt to a commercial debt collection agency.

WHEN SHOULD A SMALL BUSINESS HIRE A COLLECTION AGENCY?

For a small business, tracking down unpaid invoices can turn into a full-time job. If your company is having trouble allocating time for this task, hire a collections agency. Another consideration, other than time, is if a particular client or company is hard to collect from. If you're dealing with a difficult debtor, collection agencies are trained to handle this challenge so you can get what you're owed.

HOW DO I HANDLE ACCOUNTS SENT TO A COLLECTION AGENCY?

Small business owners forced to send accounts to collections are often left wondering, "Now what?" Should you consider an account a bad debt and write it off, or should you list it as pending income? The short answer: Don't write it off as bad debt – yet.

The strategy behind hiring a debt collection agency is to get some or all the money you are owed, so it's better to classify it as an "other charge or awaiting collection" and add it to an account specifically for assets in collections.

If the money is not collected or you only get a portion of it, you would then write off the balance as bad debt.

CAN A COMPANY TURN A DEBT OVER TO A COLLECTION AGENCY IF PAYMENT IS BEING MADE?

Small business owners have the right to place an account in collections if the bill is past due, even if the customer is making payments. That doesn't mean a few days late, but if the bill has gone unpaid for months and the client now wants to make some type of payment, you are not obligated to accept it.

It's up to the business owner, but if the client is showing a good-faith effort, it's often cheaper to collect the debt on your own than work with a debt collection agency.

WHAT ARE THE PROS AND CONS OF HIRING A COLLECTION AGENCY?

Hiring a debt collection agency has its benefits. When you contract with a collection agency, you tend to recover past due bills quicker than you would on your own. It also takes some pressure off you. Instead of worrying about sending demand letters or making phone calls, the collection agency does the work for you. Litigation protection is another perk. If you use DIY bill collection tactics that are too aggressive, you could face legal action. A debt collection agency knows the rules and regulations. They shoulder the risk if a debtor looks to sue.

There are some drawbacks to using a collection agency, and the big one is the fees. Collection agencies charge fees ranging from 20% to 50% of the debt. The older the debt is, the more it costs to recover it. The agency's tactics can also affect your business. If the agency is too aggressive, you may lose customers or gain a negative reputation.

ARE YOU RESPONSIBLE FOR DEBT YOU SOLD TO A COLLECTION AGENCY?

When you sell the debt to a collection agency, they pay you a percentage and chase after the debt on their own. Once you sell the debt, you no longer have any involvement with it. You tend to get pennies on the dollar when you sell the debt to a collection agency.

How Does an International Debt Collection Firm Work?

U.S.-based businesses and entrepreneurs who have clients or customers located in other countries can experience problems collecting a debt owed to them. Further, due to differing rules and regulations depending on the country your customer is based in and different time zones, collecting that debt can be more complicated.

An international debt collection firm specializes in recouping money from individuals and companies in other countries. These companies usually have contacts around the globe, are knowledgeable about international laws, and follow the best collection practices based on the country and jurisdiction they are operating in. Many offer services for U.S.-based companies as well as foreign ones. If you are evaluating hiring an international debt collector to recover money owed to you, we recommend that you work with an international collection agency that is licensed, bonded and insured. 

If a Company Only Has Small Balance Accounts, Is It Worth It to Hire a Collection Agency?

Most collection agencies will collect outstanding debt that exceeds $50. If you or your staff are spending too much time chasing down past-due bills and it's hurting productivity or customer service, you may want to consider hiring outside help.

Another reason to consider hiring a collection agency is that these services are knowledgeable about the Fair Debt Collection Practices Act (FDCPA). If your collection tactics violate the FDCPA, you could face potential issues with the Consumer Protection Bureau and your state's legal authorities.  Last, the number of customers who are past due will also determine whether it makes sense to hire a debt collector. If it's only a handful of customers who are past due, that may be manageable, but if you have several customers who owe you money, it may be best to hire help.

As part of our research, we reached out to small business owners to learn why they use collection agencies, which ones they use, and what they like or don't like about them.  Across the board, we heard the tactics collection agencies employ to recover debt matter than everything else, including price.

Siva Mahesh, CEO of Dreamshala, a personal finance blog for freelancers, acknowledged that while rates matter, it shouldn't be the only reason to choose a collection agency.

"You ultimately want to maximize your financial recovery, not find the cheapest agency," Mahesh told business.com. "It might be worth it to go with an agency that's more expensive if they have a better success rate."

That sentiment was shared by Jim Pendergast, senior vice president of altLINE Sobanco, a specialty lending group. He said the collection agency's approach to recovering debt has to be aboveboard. AltLine Sobanco will only work with collection agencies that have a stable operating history and a reputation that is in line with the alternative lender.

"Some people opt for a hard-knocks collector, hoping to flush out the debtor's money, but in my experience, this doesn't get good results," said Pendergast.  "In the long run, collections is about customer service and results; the agency is doing the job right when they're polite and dependable."

For Jerry Han, chief marketing executive at PrizeRebel, the collection agency's approach to collecting debt is a big consideration when choosing an agency.

"When a collection agent disregards a customer's dignity for the sake of collection, it damages the company's reputation. When this happens, companies lose the long-term decision of a customer to stay with a company," said Han.

PrizeRebel uses Prestige Services for its collection needs. The service is fast and delivers what Han calls "humane collection results," Prestige offers affordable commission rates, which he said is 5% to 10% cheaper than its rivals.

To determine the best collection agencies for small businesses in 2021, we spent dozens of hours researching the top services. Below is an explanation of our selection process.

We began our search by looking at reputable online sources, such as review and business websites. We conducted our own research, focusing on the different services available for business owners, the prices and fees, and the success rates. We examined more than 30 collection agencies in all. (See our full list of collection agencies below.)

We further narrowed the list based on different use cases and the criteria we set. As part of our research, we reviewed each agency's website, compared services and prices, and read user reviews. We contacted the agencies' customer service and sales teams to gauge the quality of service and obtain more information than was accessible online.

After our early research, we whittled our list down to 17 candidates for our best picks:  Alexander Miller & Associates; American Profit Recovery; Aspen National Collections; BYL Collections; Debt Recovery Resources; IC System; Kearns, Brinen & Monaghan Inc.; Martini, Hughes & Grossman; PSI Prestige Services Inc.; Revenue Assurance Partners LLC; Rocket Receivables; Summit Account Resolution; The Kaplan Group; TrueAccord; TSI; Verliance Inc.; and Your Collection Solution.

We based our final decisions on these factors:

• Rates and contracts
• Skip-tracing services
• Litigation services 
• Online features 
• Locations services available
• Industries served
• Customer service
• Better Business Bureau ratings and accreditations
• Customer reviews and complaints