Collection Agency Agreement
Several factors affect the collection commission rate charged and the terms of a collection agency agreement. A primary factor can be the age of an account when placed for collection. However, other factors also determine rates and terms when negotiating a collection agency agreement.
Every client has different needs and debtor demographics. Below you will find a synopsis of the main points AAB considers when negotiating a collection agency agreement.
Factors to Consider in a Collection Agency Agreement
The age of the account or accounts listed is the main factor determining commission rates on an agency agreement. The standard collection industry commission rate for accounts over one year old (from the last payment date) is 50%. The longer an account has been delinquent, the lower the recovery odds that a collection agency can expect. On the other end of the scale 30/60/90 day overdue accounts get commission rates as low as 10%. Most rates are somewhere in the middle and should be clearly defined in a collection agency agreement.
Commercial or business-to-business collection rates are usually lower than consumer collections in a collection agency agreement. However, commercial collections or bad debts are more time-sensitive than a consumer collection. A consumer can be unemployed and get back to work. In contrast, if a company runs out of money, it is out of business, and your chances of recovery are almost zero.
Clients with a high volume of collection business can negotiate slightly better commission rates. A collection agency realizes what they discount on commission rates will be made up by account volume. This is why most agencies insist on volume levels or milestones in their agency agreement.
Account documentation always plays a role when negotiating a collection agency agreement. Suppose a client has impeccable documentation like signed credit agreements, personal guarantees, or collateral agreements. Solid documentation allows a collection agency to offset a commission rate discount with the higher recovery percentage they can expect when collecting accounts. If your accounts are well documented, be sure to emphasize this point when negotiating your collection agency agreement.
In the case of commercial debtor accounts, the client’s industry may factor into the collection agency agreement. Industries have cycles that go up and down like companies. New technology can devastate an industry or a client’s industry, leaving customers in a depression, which affects the potential recovery rate of the collection agency.
What You Can Expect With an AAB Collection Agency Agreement
AAB strives to provide an agency agreement that is fair to both sides. When you contact us, a collection professional with a minimum of twenty years of experience will factor in some of the points listed above. Once we reach an agreement, AAB will provide a customized collection agency agreement.
Keep in mind that every day that clicks by decreases your chance of recovery. Contact an AAB professional by phone or request a free consultation to discuss a collection agency agreement.