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What is a Contingency debt collection?
Contingency debt collection is collecting debts on a percentage basis where a collection agency earns commissions on actual monies collected. For over 40 years, AAB has provided commercial debt collection on contingency.
The main advantage of contingency debt collection from a Client perspective is that the Client avoids out of pocket expenses and the collection agency has to perform in order to get paid. There are several factors that dictate what commission rates an agency will charge for debt collection on contingency.
3 main factors that determine commission or Contingency rates
The main factor that determines the commission rate or contingency rate a collection agency will charge is the age of the debt. Every month that clicks by reduces possible recovery percentages. For example: When most banks value an accounts receivable portfolio they determine the portfolio value according to the age of the debt. Accounts 1 month or less are valued at 96 cents on the dollar. Accounts 1 to 3 months are considered to be worth 85 cents on the dollar, etc. The older the debts the worse the odds are for collecting and in turn the reason why a higher contingency rate is charged.
Another contingency factor is whether an account is consumer or commercial. Commercial debt usually has lower contingency rates than consumer debt. Companies can die rather quickly these days so creditors tend to list commercial debt sooner than consumer debt.
As a rule, the higher the balance the lower the contingency commission rate. However, larger balance accounts require more frequent legal action for a successful collection. This is especially true in the case of commercial debt. Most contingency commission collections do not cover legal costs, which are the responsibility of the Client.
Negotiate your rate when listing a contingency debt collection
There are other factors besides the three mentioned above that affect a collection agency’s contingency commission rate. For example: A commercial collection with a personal guarantee on a debt owed by a limited company is a factor that can have an impact on the contingency rate.
Every industry and Client is different. The best way to negotiate a fair contingency debt collection agreement is to give us a call and one of our collection pros with 20 years of experience can walk you through the listing process. You can also schedule a free consultation on our Contingency Debt Collection.
