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Customers Won't Pay? How to Choose a Collection Agency

A collections agency can help you recover debt when a customer won't pay.
Credit: photastic/Shutterstock

If you've been trying to recover funds from a customer who is significantly in arrears and you are at your wit's end, it might be time to consider hiring a collection agency. These services focus on recovering debts that are past due. They contact your unpaid accounts by phone, in writing and via email. In extreme cases, they may seek legal recourse on behalf of your company. And the method works – collection agencies recoup tens of billions of dollars each year.

While there are many reputable collection agencies, there's a reason the industry has earned a bad rap. Some agencies rely on unscrupulous or illegal tactics to collect money, and that's something to avoid at all costs, because it reflects poorly on your business. There are strict laws surrounding collections efforts, and any reputable agency will follow them.

Many people confuse collection agencies with debt buyers; there are important distinctions between the two. Debt buyers purchase debt for a reduced price – sometimes pennies on the dollar – and keep all of the money they collect. Collection agencies, on the other hand, are paid a percentage of any outstanding funds they recover, but they don't own the debt. When they collect a debt, they hand the money over to you, minus a certain percentage in fees.

If you're considering hiring a collection agency, it's imperative to do your research so you know what separates the good services from the bad ones and that you hire an agency that is experienced, professional and familiar with your industry. Not every collection agency will be a good fit.

Our goal with this buying guide is to save you hours of research time. In this guide, we explain when you should hire a collection service, how you can find a reputable service, the laws that apply to collection agencies and what you can expect to pay in fees.

We've also included our recommendations for the best agencies, depending on whether you're a small business, you need to collect past-due funds from a business (an agency specializing in B2B collections) or a consumer (an agency specializing in B2C collections).

Editor's Note: Looking for a collection agency for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

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Rocket Receivables is the best collections agency service for small business because of its helpful online portal, inexpensive fees and tailored strategies. Its online portal puts business owners in control of their delinquent accounts.

Rocket Receivables offers two different approaches to debt recovery, based on the company's fee structure: The first stage, fixed-fee collections, helps small businesses and is designed for newer accounts. Fees range from $10.95 to $19.95 per account. For stage two, contingency collections, you are only billed if Rocket Receivables collects on the account. Fees are split 50-50.

Read a full review of Rocket Receivables on our sister site Business.com.

Summit AR is our choice for best B2B collections agency service. It has a range of features, including an entire skip-tracing department, an online portal and full-service litigation. When you sign up, you'll also receive a personal account manager who can answer all your questions and concerns.

Summit AR creates a customized approach to each account to ensure you're able to maintain a professional relationship with debtors. Summit emphasizes ethical, fair and considerate debt collection. Its staff utilizes an approach called the "P.H.D. Philosophy" (Preserve Human Dignity). Summit charges contingency fees that range from 7.5 to 50 percent of the debt. Summit has an A+ rating by the Better Business Bureau. 

Read a full review of Summit Account Resolutions on our sister site Business.com.

Aspen National Collections is our choice for the best B2C collections agency. It has skip-tracing, an online portal and customized approaches to recouping money owed to you. This service can also collect debt in Mexico and Canada.

Aspen's customer service is excellent; it has expertise in consumer debt, specifically for companies with timeshares, student loans and utility cooperatives. The vendor typically takes 35 percent of the amount of debt they collect per account. Aspen is rated A+ by the Better Business Bureau.

Read a full review of Aspen National Collections on our sister site Business.com.

Most companies send past-due accounts to a collection agency when they are between 90 and 120 days past due. If you wait longer than that, you're far less likely to recover the debt. The more time that passes, the lower the chances of recouping your money. Generally, it's time to start thinking about hiring a collection agency when:

  • New customers do not respond to your first attempt to collect the debt. When you do not have a payment history with the customer, there's a greater chance they will refuse to pay.
  • You've agreed to a payment plan, but the customer doesn't follow through. Customers who still won't pay after you've agreed to meet them halfway with a payment plan are unlikely to pay what they owe you.
  • A customer completely denies responsibility for the debt. Unless you enlist the help of a collection agency, these debts are rarely recovered.
  • The customer makes unfounded complaints about your business, product or service as an excuse not to pay. Most of the time, these complaints are just an excuse to get out of paying the debt.
  • The customer has a history of financial irresponsibility.

Once you've exhausted your options and aren't getting anywhere with a customer on your own, further attempts to collect the debt are better left in the hands of a professional agency that may recover at least a portion of what you're owed, if not all of it.

There are more than 4,000 collection agencies in the United States alone. Some handle consumer accounts; others specialize in business-to-business (B2B) collections, also known as commercial collections. The biggest firms often handle both.

Some collection agencies specialize in certain industries, such as healthcare, insurance, utilities, credit cards, mortgages or auto loans, while others work for a number of industries. There are agencies that cater to businesses of certain sizes (small business versus large corporation) as well as by region (local or national). Beyond basic collection efforts, some agencies provide additional services, such as billing, telemarketing, accounting or business administration.

It is important to hire an agency with an established track record of successful collections in your industry. The agency should be familiar with the terminology in your industry and the rules or regulations set forth by state or federal agencies governing your industry, if applicable. If you're in the healthcare field, for example, the agency needs to be well versed in insurance requirements, medical terms and important laws like HIPAA.

Here are some other practical tips to help you pinpoint a reputable, effective service.

  • Ask for referrals from your attorney, accountant or trusted business associates in your industry. Go beyond just asking for agency names. Find out why the person is recommending that particular agency. Does it have a high success rate? Are they known for their strict adherence to laws?
  • Search the ACA International directory to find a member agency licensed in your city or state. ACA International, the Association of Credit and Collections Professionals, is a nonprofit that establishes ethical standards for the industry and requires that its members adhere to them.
  • Check the Better Business Bureau for ratings on any collection agency you are considering. One or two complaints can be a fluke; multiple complaints are a major red flag.
  • Make sure the company is state licensed and/or bonded, if applicable. Many states require one or both.
  • Find out where the agency is licensed. If you only do business locally, an agency that is licensed only in your state is fine. If you have customers across the U.S., find an agency licensed in all applicable states.
  • Determine whether the company is insured. Errors and omissions liability insurance (E&O) is often a sign of a reputable agency. E&O insurance provides coverage for claims brought by consumers for improper conduct, such as harassment. In many cases, that coverage extends to your business. While E&O insurance is not required by any federal or state laws, it's a sign of good faith.
  • Visit the collection agency. Before you commit, sit down with the collection agency to learn more about them. There's a lot you can tell about whether the agency is reputable by talking to them. Ask to see proof of results: What percentage of debts have they successfully collected? Find out which tactics and technologies the agency uses in its collection efforts. Ask for references, and check them. If the company doesn't seem like a good fit, trust your instincts and move on.
  • Don't worry too much about size. A large, national firm is not necessarily a better fit than a small, local one. It depends on your needs, the agency's strengths, its reputation and its track record.

When choosing a collection agency, integrity and reputation are among the most important considerations. Never choose a company with questionable standards, even if the company claims to get excellent results.

A company that uses dubious methods to collect debt can damage your reputation, costing you current and future customers. In worst-case scenarios, your company can face litigation for a collection agency's illegal practices, even if you were not aware of its actions.

All consumer collection agencies are required to comply with a federal law regulating the industry known as the Fair Debt Collection Practices Act (FDCPA). It's important you know the law so you can hire a collection agency that abides by its precepts.

Under FDCPA, collection agencies:

  • Cannot call debtors before 8 a.m. and after 9 p.m., unless the debtor has agreed to it beforehand
  • Cannot call at inconvenient places. For example, if the debtor has requested to not receive calls at work, collectors can no longer call a debtor's employer
  • Must honor letters requesting that contact concerning a debt cease
  • Must contact a debtor's attorney if the debtor has one
  • Cannot contact third parties (including family and friends) more than once. They can only contact the third party to find a way to contact the debtor, and they can't state the consumer owes debt
  • Must send the debtor validation and verification of debt
  • Cannot threaten harm or violence
  • Cannot threaten garnishment, seizure of property or other legal action unless the agency is intending to take action (and is legally allowed to take that action)
  • Cannot make false statements, such as that the debtor has committed a crime or that the collector is an attorney
  • Cannot send documents that look like court or legal documents but aren't

FDCPA only applies to consumer debt, not debt that someone accrued while running a business.

Many, but not all, states require collection agencies to be licensed and/or bonded. Always find out what your state requires, and check whether the collection agency you're considering is compliant. While membership to ACA International is not mandatory, it does mean the agency has been vetted.

If you're dealing with commercial or B2B debt, look for a collection agency certified by the Commercial Law League of America (CLLA) and one that is a member of the Commercial Collection Agency Association (CCAA). Like ACA International, both require commercial collection agencies to follow a strict code of ethics, to follow proper accounting principles and to be bonded.

Aside from the lack of proper licenses and certifications, another red flag is whether the service has been sued. It's usually easy to uncover past (or current) lawsuits with a simple Google search.

There are many factors that determine collection agency fees, including the size of the debt portfolio, the type of work required to collect the debt, the age of the account, the agency's experience and more. Most collection agencies have some type of tiered pricing structure, and most charge only when they collect.

Fees charged as a percentage of the collected debt are known as contingency fees, and they are negotiable. Typically, they range anywhere from 10 to 50 percent, depending on the size of the debt.

Keep in mind that the lowest rate doesn't always mean the best results. The return rate is what's really important. If you pay a 25 percent fee on $1,000 worth of debt and the agency collects only $300 of that, your return is $225. However, if you pay 35 percent to an agency that collects $500, you reclaim $325.

In some cases (though it is uncommon), an agency charges a flat fee. Typically, an agency will only agree to do this if the debt is less than 90 days old – otherwise known as precollection – or just over 90 days.

The best collection agencies have the proper tools and resources to ensure the highest returns. These resources include technologies, partnerships with other agencies and attorneys, and a highly skilled and trained staff.

Technologies to look for include:

  • Skip-tracing services that are used to locate customers who are hard to find. Typically, these are databases that allow collection agencies to find debtors who have moved without leaving a forwarding address.
  • Digital technologies that go beyond just phone calls and snail-mail letters, allowing customers to negotiate payments or file a dispute online. These appeal to younger debtors and people uncomfortable discussing their debt with collection agencies over the phone.
  • Algorithm-based collections tailor strategies to the debtor. This allows collection agencies to build a profile in order to better understand the customer and the right way to resolve the debt. Often, email is the first form of communication versus a formal letter.
  • Online access that allows you to monitor the status of accounts, communicate with the agency and run reports on the status of your collections. This is especially helpful if you have a multiple accounts with the collection agency. It allows for real-time information rather than waiting around for weekly or monthly status reports.

Properly trained collectors are also crucial. You want a company whose employees are experienced and skilled negotiators. Find out if the collection agency's employees receive regular education and training. Courses are available through ACA and other membership organizations. If possible, arrange to listen in on a few calls before committing to a collection agency.

You want a collection agency that is a partner, not just a contractor. To that end, you'll need to invest effort into managing the relationship. The agency should be willing to meet face to face periodically to review the status of your accounts, and they should promptly return phone calls and emails – ideally within one business day.

There's work to do on your end, too. To promote the highest possible returns, you should provide the collection agency with as much information about the debtors as possible, including:

  • Names, addresses and telephone numbers
  • Cellphone numbers and email addresses
  • Names of the debtor's spouse, friends, relatives and neighbors
  • Information about whether the debtor has responded to your debt collection efforts, and if so, how
  • Details about the purchase or transaction, including the date
  • Any paperwork related to the transaction, including contracts and credit applications
  • Nicknames, maiden names and aliases

The more information the agency has, the more money you collect.

Below is a list of collection agencies based in the United States. We considered Better Business Bureau ratings and evaluated the number and gravity of complaints against each company. (Note: Of the complaints we evaluated, we mainly considered those filed by businesses that hired the agencies – not grievances from debtors, though some debtor complaints were considered and thoroughly researched if there were recurring reports of illegal collection practices.)

Aargon Collection Agency – Aargon has offices in Nevada, Hawaii, Florida, Colorado and Missouri, but it collects debts nationwide. It combines technology with debt recovery strategies to all industries, though it has specialized services for medical debt and utility company debt. This collection agency has its own compliance department to ensure compliance with federal and state laws, including FDCPA. aargon.com

Account Management Systems – AMS collects commercial debts. Based out of Tampa Bay, this debt collection service collects debts nationwide, charges no upfront or sign-up fees, and only collects money if they recoup your debts. amscollects.com

Alexander, Miller & Associates LLC – Alexander, Miller & Associates is a national collections agency that provides services to businesses of all sizes. It offers demand letters, commercial credit reports, on-site investigations, prelitigation services and skip-tracing. The vendor states it has collectors who specialize in trucking transportation and freight, wholesale seafood and produce, restaurant supply, and heavy equipment rental. amafirm.com

*Aspen National Collections – Aspen National Collections works with the timeshare, education, municipal and utility industries to collect outstanding debts. It creates debt collection strategies tailored to each company it works with. This agency's website has an online portal so clients can log in and monitor the progress of their past-due accounts. It's our best pick for B2C collections agency. aspennational.com

Benjamin Michael & Associates Inc. – Benjamin Michael & Associates is based in New York City. Is has many features, such as demand letters, skip-tracing, and reports on demand, to help you recover debt from delinquent accounts. www.benjaminmichaelassociates.com

Client Services Inc. – CSI combines roll-rate and liquidation results and technology like voice analytics software to ensure compliance with collection laws. It is PCI-DSS compliant and has several safety certifications. In addition to collection services (pre charge off), it offers recovery services (post charge off). clientservices.com

CollectionCenter Inc. – CollectionCenter, Inc. has offices in Wyoming, Colorado and Utah. It offers precollection and bad debt collection, litigation, online account access, healthcare payment system and more. Debtors can make payments over the phone, via mail or online. mycollectioncenter.com

Credit Management Company – Founded in 1966, Credit Management Company recovers debts for government, healthcare, higher education, financial services and commercial businessesIt has an online system for debtors to make payments. In addition to collection services, it offers claims resolution services. creditmanagementcompany.com

Debt Recovery Resources – This is a full-service debt collection agency that not only helps recover debts but can help its clients improve internal debt collection processes. Debt Recovery Resources can manage accounts receivable, perform free legal background checks, search and find debtors, and more. debt-rr.com

FEDChex Recovery – This solution offers several payment solutions to companies nationally. Services include check verification, automated clearinghouse, remote deposit capture, electronic payments and risk management. fedchex.com

Firstsource Advantage LLC­ – Firstsource works with healthcare providers, credit card issuers, universities and financial institutions to collect debts that are past due. This collector uses technology, internal audits, legal oversight, regulatory compliance and other methods to collect debts. firstsourceadvantage.com

Global Executive Solutions – Founded in 1987, Global Executive Solutions offers services to all industries including commercial, consumer, medical, government and retail accounts. It offers online reporting, free credit reports, letter campaign and legal services. goglobales.com

Martini, Hughes & Grossman  – Martini, Hughes & Grossman offers customized approaches to debt collection. It has in-house legal advisors, skip-tracing technology, sends status reports bi-monthly, and collects both B2B and B2C accounts. It can track down debt nationally and internationally, and is accredited with the Better Business Bureau. mhg.bz

National Association of Credit Management – The NACM is an advocate for financial management and business credit professionals, and it also has its own collection service. Collections begin with contact that demands full payment. NACM can also work with its affiliates to connect with bonded attorneys to retrieve your debt. nacm.org

Nationwide Credit & Collection Inc. – NCC focuses primarily on healthcare finance collections and offers many services, including past due and final notice letters, payment plan management, credit bureau notification, legal action (if necessary), Medicare bad debt and more. Debtors can make payments toward their account online and request verification of debt on NCC's website via its e-comply form. ncc.us

Prestige Services Inc. – PSI is available nationwide to collect commercial debt. It has been in business over 20 years, and its staff has over 50 years of collective experience. It provides professional skip-tracing to help locate debtors, and it can investigate businesses. If the debtor won't pay even after all of PSI's efforts, the agency can forward the account to an attorney in the debtor's area. psicollect.com

Progressive Financial Services Inc. – With offices in Pennsylvania and Arizona, Progressive Financial Services, Inc. works across the United States to collect debts. According to the agency, it focuses on mediating with debtors rather than confronting them, and works to find a resolution for all parties involved in the debt. Progressive provides secure file transfer so that debtors can upload important documents related to their debt. progressivefinancial.com

Recovery Solutions Group – RSG collects commercial debts. According to the company, it has a national attorney network, and it employs private investigators to handle business accounts. It can collect debts in the U.S., internationally and manages accounts receivable. It specializes in HOA assessment fee recovery and fire and water debt recovery. rsgcollect.com

Revenue Assurance Partners – This solution customizes its service to your business. You can outsource as many or as few internal processes as you want. The company states it has over 50 years of experience collecting past-due accounts. It also provides auditing, reporting, legal forwarding and other collection services. rapcollect.com

*Rocket Receivables – This debt recovery agency supports small- and mid-sized businesses, and is our pick for the best collections agency for small business. It offers fixed-fee pricing. A more advanced service is available on debts that are more than 120 days delinquent. These are contingency collections, meaning that you'll split the recovered funds 50-50. rocketreceivables.com

Smyyth LLC – Smyyth is an international collection agency that offers skip-tracing, an online system and online reports. If they are unsuccessful at first, they offer litigation services. This vendor can select counsel for you to ensure you receive assistance and guidance to acquire payments. smyythcollections.com

*Summit Account Resolution –  This vendor is our choice for best B2B collections agency because of its online portal, skip-tracing department and litigation services. Once you sign up with this provider, you receive an account manager who is available to answer all your questions. summitcollects.com

The Offices of Montgomery & Meyers  – The Offices of Montgomery & Meyers, a national and international company, offers aggressive collection strategies, such as investigations and litigations. It specializes in commercial debt recovery. nationalcollectionservice.com

Transworld Systems – Servicing the medical, dental and education industries, Transworld Systems provides services with collections, loans, billing and analytics. Full-service efforts range from asset investigation to legal action. It has contingency pricing, meaning that if the debts aren't collected, you don't pay the agency. tsico.com

Tucker, Albin & Associates – This collection agency has a network of over 500 private investigators and attorneys to help with debt collections across the globe. It only collects commercial debts, not consumer debts. tuckeralbin.com

VeriCore – This international collection agency focuses on recovery, reporting and remittance. It claims to have recovered debts on every continent and has the ability to report companies to the U.S. Embassy and the Commerce and Trade Division of the U.S. Government. Services are available in over 130 languages via interpreters. vericore.com

Your Collection Solution – This collection agency collects consumer and commercial debts. It has a contingency-based fee structure. Though headquartered in Florida, Your Collection Solution can work to recoup debt in the U.S. and in several other countries. The company states its management team has over 30 years of experience in the industry. ycscollects.com

Editor's Note: Looking for a collection agency for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

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Saige Driver

Saige Driver graduated from Ball State University in 2015 with a degree in journalism. She started her career at a radio station in Indiana, and is currently the social media strategist at Business News Daily. She loves reading and her beagle mix, Millie. Reach her by email, or follow her on Twitter.