Key Points:
- Pre-Collection Dunning Letters
- Contingency-based Debt Collections
- Hourly Billing Debt Collections
- Flat Fee Debt Collections
- Debt Collection Agencies that Buy Debt
- Scheduling Debt Collection Consultation
Pre-Collection Dunning Letters
Pre-collection dunning letters are a proactive and cost-effective way to encourage payment from debtors before an account officially moves to collections. These letters serve as a formal reminder to the debtor, outlining the overdue amount and providing a clear opportunity to resolve the debt without further action. By offering a softer approach, pre-collection letters help maintain positive relationships between businesses and their customers while still promoting timely payment.
At Atlas Financial Services, we provide pre-collection dunning letter services tailored to your industry. Companies can sign up for this service, and we will send out the letters on your behalf, branded with your business name. These letters emphasize the importance of resolving the debt promptly, giving debtors a final opportunity to pay before the account transitions to a formal collection process.
Pricing for this service is based on your industry and the volume of accounts submitted. Pre-collection letters are an excellent option for businesses looking to improve cash flow while avoiding the potential strain of full collection actions. Contact us today to learn more about how our pre-collection services can help streamline your accounts receivable process and recover payments effectively!
Contingency-based Debt Collections
Regular Debt Collection Accounts
Contingency-based debt collections are one of the most common ways debt collection agencies charge for their services. With this method, there is typically no upfront cost. Instead, the agency collects a percentage of the recovered amount based on a pre-agreed percentage. If the agency is unsuccessful in recovering the debt, there is usually no charge.
This model is often considered less risky and controversial for businesses since the agency essentially acts as an extension of your accounts receivable department. They handle tasks such as:
- Making phone calls to debtors.
- Sending dunning letters (reminders to pay).
- Conducting skip tracing (locating hard-to-find debtors).
All of these activities are carried out in compliance with federal and state regulations, including adherence to the Fair Debt Collection Practices Act (FDCPA).
Standard Contingency Rates
The percentage charged by the collection agency varies based on factors like the volume of accounts and the value of each account:
- Typical Rates: 25% to 40%.
- Small Accounts: For a single account valued at $3,000, the rate is often around 40%.
- High-Volume Accounts: If you have thousands of accounts at $3,000 each, there is usually room for negotiation to lower the rate.
Debt Collection for Lower-Value Accounts
For lower-value accounts, such as parking penalties where thousands of accounts may each be worth $40, the contingency percentage typically remains closer to 40%. This is because these cases require substantial effort to locate debtor demographics and manage collections across a high volume of small accounts. Part of this process involves conducting thorough and compliant research to ensure successful recovery.
At Atlas Financial Services, we undergo annual audits with the Washington Department of Licensing (DOL). These audits allow us to access critical information, such as demographics tied to vehicle plate numbers, in full compliance with state regulations. This capability ensures that even in challenging cases, we can locate the necessary details to facilitate collections effectively and ethically. This added layer of diligence ensures we maintain professionalism and achieve results while adhering to the highest standards of accountability.
Legal Accounts
When debt collection agencies offer legal services on a contingency basis, they often refer to these as legal accounts. Here are the key details about this service:
- Standard Contingency Rate:
- Typically set at 50% of the recovered amount.
- Charged only if the agency successfully collects the debt.
- Judgment Collections:
- If a client has already secured a judgment on a debt, agencies generally accept the account at the 50% contingency rate.
- If a judgment hasn’t been retained, this service usually includes:
- Retaining a judgment as part of the legal process.
- Wage garnishment to recover the owed amount.
- Court Costs and Cancellations:
- If a client cancels a debt after the agency has incurred legal fees to retain a judgment, the agency may require:
- Reimbursement of court costs before cancellation.
- If a client cancels a debt after the agency has incurred legal fees to retain a judgment, the agency may require:
- Fee Reductions:
- Rarely offered by agencies.
- Typically reserved for special cases or high-value clients.
Choosing performance-based collection services ensures that the agency only gets paid when they successfully recover your debt, aligning their incentives directly with your success. This “no recovery, no fee” model minimizes financial risk for businesses, as you don’t pay upfront costs or for unsuccessful efforts. Additionally, performance-based agencies are highly motivated to recover as much as possible, often employing skilled teams and efficient strategies to maximize results. This approach also fosters trust, as the agency’s success is tied to their effectiveness in recovering your accounts.
Hourly Billing Debt Collections
Hourly billing is a less common method used by debt collection agencies but is ideal for specific cases where predictable costs or extensive work is required. Agencies charge a set hourly rate, typically ranging from $30 to $100+ per hour, depending on the complexity of the case, expertise needed, and regional market rates. Clients pay for the time and effort spent, regardless of whether the debt is successfully recovered.
This method is often used for complex legal cases, in-depth investigations (e.g., skip tracing), custom projects, or when the agency is required to provide expert testimony in court. It provides transparency and flexibility, allowing clients to track costs and pay only for the specific services rendered.
However, hourly billing can be expensive, especially for lengthy or intricate cases, and may not guarantee recovery of the debt. For smaller debts, the costs can quickly outweigh the potential recovery, making it less practical for such scenarios.
Overall, hourly billing is a suitable option for clients with specialized or complex needs, offering detailed attention and expertise in exchange for predictable fees.
Flat Fee Debt Collections
Flat fee debt collection is a straightforward and affordable option where businesses pay a fixed fee for each account they want the agency to pursue. This method is best suited for newer debts (typically 30–90 days overdue) that are easier to recover. The fixed cost, usually ranging from $10 to $50 per account, covers basic collection efforts like sending demand letters, making follow-up calls, and offering repayment options. It’s a great choice for businesses that need to handle early-stage debts quickly and cost-effectively, especially when dealing with lower-value debts or large volumes of overdue accounts.
The main advantage of flat fee collection is its predictability—businesses know exactly what they’ll pay upfront. However, it comes with some trade-offs, as there’s no guarantee the debt will be recovered, and agencies typically focus on simple recovery efforts rather than intensive follow-ups or legal action. This approach is ideal for companies looking for an affordable way to recover manageable debts without the higher costs of other collection methods.
Debt Collection Agencies That Buy Debt
Some debt collection agencies operate by purchasing delinquent accounts outright from creditors, often for a fraction of the original amount owed. These agencies then assume ownership of the debt and collect directly from the debtor, keeping all the money they recover. While this model can provide immediate cash flow for creditors looking to offload uncollectible accounts, it has raised significant controversy.
The controversy stems from the aggressive tactics some agencies use to maximize their profit. Because they now own the debt, these agencies may take a “no holds barred” approach, which can include excessive calls, threats of lawsuits, or even unethical practices. These tactics often damage relationships between creditors and their customers, harm debtors’ financial stability, and, in some cases, lead to lawsuits or regulatory penalties for abusive collection practices.
At Atlas Financial Services, we take a different approach. We do not buy debt. Instead, we act as an extension of your Accounts Receivable (AR) department, working on a contingency basis. This means we only get paid when we successfully recover your debt, aligning our success directly with our efforts. Our focus is on maintaining professionalism and preserving your relationships with your customers while maximizing recovery. Our model ensures that both our clients and their customers are treated fairly and ethically throughout the process.
Get Started with Atlas Financial Services
Ready to simplify your debt recovery process and start placing accounts with Atlas Financial Services? Schedule a quick meeting with Brandon Russell to get set up today!
This meeting takes just a few minutes and will get you started in no time. During the session, Brandon will guide you through the process and answer any questions you may have.
Let’s work together to recover your accounts efficiently and professionally!