How to choose a collection agency — part one
How To Choose A Collection Agency — Part One
The type you choose depends on how much time, effort, and money you are willing to put in before you turn accounts over. They fall into two broad categories: Contingency Agencies & Fixed Fee Agencies.
Contingency Agencies
Contingency Agencies, so named because their fees are “contingent” upon collecting from debtors, typically charge anywhere from 20% to 50% of amounts recovered from patients. The fee may be based on the age of the debts owed, but more typically is based on negotiations, with larger practices and practices with larger balances, able to negotiate lower charges. Some have two tiered fees, depending on the age of the account when collected.
Age of Accounts
They tend to get accounts that are at least 6 months delinquent due to the fact no doctor wants to give up a 20% to 50% on income the he or she worked hard for. If your accounts are over a year old, a contingency agency is your best bet. At that point there is only a 10% chance anything will be collected. If they collect nothing, you pay nothing
Motivation
Contingency agencies are dependant upon human intervention with debtors. Collectors typically are rewarded with a percentage of the agency’s share as a commission. They are highly motivated to work accounts most likely to earn them the biggest reward for their efforts. Elaborate “scoring” models have been developed to direct their efforts to those accounts.
Shopping For Price
Think you’re a great negotiator? Choosing a contingency agency simply based on the fee they charge has pitfalls. As you succeed in driving down their fee, rewards to the agency (and collector) are lowered. Your accounts may be ranked lower than another practice’s because the other practice is willing to pay more. Taken to an extreme, an agency that charges only 20% may not collect much, if anything, while an agency that charges 50% might recover 30% of your past due balances. Which is the better deal? Note that according to the American Collector’s Association’s “2008 Benchmarking Survey” the average agency recovered only 13.8% of the dollars they were assigned to collect, due in large part to the age of the accounts assigned.