I recently received a call asking what I thought of this proposal to a creditor from a third party collection agency. The agency would collect on a contingent fee structure debts at between 15% and 20% of the amount collected depending on the age of the debt when placed.
If the standard collection process did not produce results, the account would be transferred to an attorney for lawsuit. At this time, the contingent fee would more than double to a minimum of 45% of the amount collected plus court filing fees.
I responded that this was a win-win situation — for the agency. If the agency was able to collect with minimum effort, it picked up 15% to 20%. If it went to an attorney, the collection agency probably still received a portion of whatever the attorney was able to collect. My concerns were:
- If the attorney works directly for the collection agency, the agency has little incentive to address the collection process aggressively, and
- I always want to be the decision-maker relating to if or when an account is placed with an attorney. Why? If placing an account for collection seriously damages the business relationship between supplier and customer, suing the debtor usually destroys the relationship and any possibility of future business
That’s my opinion. What’s yours?
Michael Dennis’ Covering Credit Commentary. Michael’s website is www.coveringcredit.com.
The opinions presented are those of the author. The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors. Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.