Fees

Collection Fees Are Only One Factor in Selecting An Agency

Choosing an agency based upon the lowest fee charged may not be the best choice. While price is a factor in making any business decision, it should not be the primary determining factor, especially where qualitative variables need to be assessed.

Most of us are familiar with the old adage “You get what you pay for.” Low collection fees often result in an agency rolling back operations and efforts. An agency is a business and as such needs to earn a fair rate of return. Lower prices or fees almost always mean that the agency will cut back on its collection efforts to reduce expenses.

Creditors should focus on two terms – “net back” and  “yield.” Simply stated, net back means the amount of money returned to the creditor from accounts placed for collection as a percentage of the amount placed. An agency with a higher net back collects more accounts and returns more dollars to the creditor. Yield means “skill and resources’ demonstrated by a higher percentage of collect-ability — more dollars collected from the placements.

Often agencies that specialize in letter series or charge low collection fees do not produce high net back. This example shows how important net back and yield are in making the better business decision. In this example Agency C returned significantly more to the creditor than Agency X, even though it had a higher collection fee rate.

 

When selecting an agency it is important to look beyond the fees they are charging and understand the resources that will be applied to collect your accounts.