No matter what business or industry you’re in, accounts often dry up and you are faced with the decision of whether or not to send delinquent payments to a collection agency. Collection agencies can be intimidating and tough to deal with, both for the individual seeking to use their services, as well as the delinquent debtor. Contingency collection services provide a viable and useful option for those seeking to hire a collection agency to collect outstanding debt. This article provides an overview of what a contingency debt collection is and how the contingency collection agencies work, and provides some pointers on whether or not your business may want to seek their services.

What is contingency debt collection and how does it work?

Generally, there are two types of debt collections agencies that business owners should be aware of: contingency debt collection agencies, and collection agencies that buy the debt they are collecting on. In contingency debt collection, the collection agency will simply get a percentage of what is collected. Typically, the collection agency and client will agree upon a percentage of the amount that is to be paid, and the client will only pay the agency if the debt is collected. This not only clears the client of payment if the debt isn’t ultimately collected, but it is also a large motivator for the agency to actually collect the debt.

In addition to agreeing on an amount that the collection agency will be paid once the collection is complete, some agencies may also require a fee up front to pursue the debtor. Clearly, in a collections situation, the debtor has not been paying their bills and it can be difficult for some collections agencies to obtain the outstanding debt. Because there is obvious risk involved for the agency, some will require that a fee be paid prior to work collecting the debt begins. Most of the time, while these fees can be higher than expected, the return of having a delinquent account satisfied can be much higher. However, it is likely in your best interest to consult your lawyer to negotiate these on your behalf. Your lawyer may even have the knowledge and skill necessary to ensure that any upfront fee is waived entirely.

Why and when should a contingency collection service be used?

Collecting an outstanding debt is very frustrating, and many business owners wonder how, exactly, they should go about this process. As noted above, there can be a clear advantage to using a contingency collection service: they don’t get paid unless they have collected the outstanding debt. It often makes sense to use a contingency collection agency if the debt due to your business is over 120 days past due. Contingency collection agencies are aggressive and will go after the customer with a combination of letters, calls, negotiations, and in some cases, legal action, if necessary.

Contingency collection agencies may also prove useful on so-called “second placement” accounts. These types of accounts have already been sent for collections via another agency and have yet to be collected. However, because the debtor has not paid you, nor the first collection agency, most contingency collection agencies will require an upfront fee for “second placement” accounts. Again, this is another reason it is important to engage a qualified lawyer to ensure you are not paying too much or exposed to too much risk when pursuing a debtor.

In the end, remember that debt, unlike a fine wine, doesn’t age well. The longer you have debt on your books, the shorter your chances of recovering it are. Consider your options strategically and make sure you have a lawyer representing the best interests of your business. Contact Favret Carriere Cronvich today.