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If someone owes you money and you are having a difficult time collecting, you may want to consider getting professional help from a debt collection agency. Collecting overdue payments can feel frustrating and time-consuming.
According to an IBISWorld report, the market size of debt collection agencies in the US was $16.1bn in 2024, growing at a 6.4% CAGR between 2019 and 2024. This significant presence highlights the necessity of understanding how much they usually charge for debt collection.
This guide will explore the different models in which collection agencies charge clients, the factors influencing these charges, and more. Let’s get started.
A debt collection agency is a business used by original lenders to retrieve money from past-due or defaulted accounts. Collection agencies collaborate closely with lenders to recover delinquent funds.
Usually, when a borrower is 60 to 90 days past due on a loan and the creditor is not able to recover the dues, he/she frequently hires a collection agency to reduce losses.
Also Read: Benefits and Cons of Outsourcing Debt Collection Services
Now, let’s understand the factors based on which debt collection agencies charge.
Several factors influence the amount of debt collection charges. They are:
Collection charges are often higher for debts that have been unpaid for a longer period. This is because collecting a debt becomes more difficult the longer it is left unpaid. Hence, the agency needs to put in more tenacious efforts to collect the debt successfully.
Did You Know? Only 50% of debts have a chance of being collected by the time they are six months past due, a figure that reduces to a mere 10% by the time they are two years old.
Higher fees are typically associated with larger debts since the potential recovery amount warrants greater and unusual efforts to negotiate a resolution. Additionally, this can lead to a more thorough collection method that takes more time and money.
However, some agencies may charge smaller percentages of the total amount collected in order to give their clients a better percentage recovery.
The cost also depends on the number of accounts an agency is expected to handle. If it manages a large number of small debts, the agency may provide bulk collection discounts.
Certain collection agencies provide credit reporting services as an extension of their collection activities. Due to the additional work and responsibility involved in providing the debtor's information to credit bureaus, this service may result in higher fees.
The debt collection agency usually charges extra fees if legal action is required, such as filing lawsuits, getting court orders, or handling garnishments. Legal services are more expensive since they call for specific domain knowledge and frequently involve greater risk.
If the debtor cannot be traced, agencies may find the debtor using various investigative methods like skip tracing and charge more for such services.
Are you finding it difficult to track and manage debts? Are you willing to invest in hiring a collection agency but pondering how much they may charge? Let South East Client Services (SECS) help simplify your debt collection efforts. With comprehensive strategies and transparent processes in place, our expert team is here to help you navigate debt management with ease.
Having understood the influencing factors, it’s time to dive into the commonly used models collection agencies use for charging clients.
Learning about the several charging models, including the usual cost of most collection agency fees, makes finding the best-suited one simpler. Here’s how collection agencies typically charge.
An arrangement whereby a creditor gives a collection agency a portion of the debt upon successful collection is known as contingency debt collection. Often referred to as "No Payment, No Fee," this model states that the creditor is exempt from paying a fee if the agency is unable to collect. To put it simply, payment is only due after the collection is received.
Usually, agencies charge 15–50% of the total sum collected. Additionally, some agencies may also charge a retainer for services in contingency collections contracts.
Example: Let us say a textile manufacturer that owes $20,000 from its retailer client hires a collection agency at a 20% contingency charge. Once the agency successfully collects the debt, the textile manufacturer gets $16,000. The agency keeps the remaining 20%, or $4,000, as its commission. The textile manufacturer does not, however, owe the collection agency any fees in the event that the agency is unable to collect the debt.
The chart below shows typical contingency collection rates for debts of different sizes and ages. Keep in mind that these rates are not fixed. Instead, they vary from agency to agency.
The above bar graph shows typical contingency collection rates for debts of different sizes. It signifies a rise in collection fees as a percentage of the total collection amount for high-value debts due to the requirement for greater effort and expertise.
The above line graph shows typical contingency collection rates for debts of different ages. It signifies a rise in collection fees as a percentage of the total collection amount for older debts due to the greater difficulty involved in the recovery process.
This model minimizes your financial risk in the following ways:
Some collection agencies charge a fixed upfront cost, usually $15 to $25 per account, to carry out basic collection efforts like sending demand letters, making follow-up calls, and offering repayment options. The fee is levied regardless of the debt amount or other variables. Additionally, even if the agency is unable to collect, the debtor still has to pay because the cost is not dependent on collection.
That being said, the cost varies and frequently depends on the number of accounts you intend to submit under your contract.
It is a fantastic option for creditors who need to deal quickly and affordably with early-stage debts (typically 30–90 days overdue), particularly when handling a large number of past-due accounts or lower-value debts.
Although debt collection agencies do not frequently employ hourly charging, the model works well in certain situations where large amounts of work or predictable expenses are needed.
The hourly pricing is fixed and usually ranges from $30 to $100+ per hour, depending on the case's complexity, the level of experience required, and local market rates. Even if the debt is not successfully collected, the clients still pay for the time and effort invested.
This approach is commonly used for complex legal matters, in-depth investigations (such as skip tracing), specialized projects, or situations where the agency must testify as an expert in court. Because of its flexibility and transparency, customers can keep tabs on expenses and only pay for the particular services they receive.
Did You Know? Creditors also sell debt, apart from occasionally employing collection agencies to collect debt on their behalf. How much do debt collectors pay for accounts in such a case? Well, it ranges between as little as 4% to 50% of their face value.
For instance, a debt originally owed at $1,000 may be purchased for anywhere from $40 to $500. In these situations, the collection agency becomes the new creditor.
Understanding how much you need to pay debt collection agencies is crucial for recovering outstanding debts. The fees vary based on factors such as the age of the debt, its size, the volume of accounts, and whether legal or credit reporting services are involved. Whether you opt for a contingency fee, a flat rate, or hourly billing, each model has its pros and cons, depending on your specific needs and financial situation.
If you’re seeking a reliable, transparent, and ethical approach to debt recovery, South East Client Services (SECS) stands out. With an expert team, commitment to client satisfaction, and transparent pricing, SECS offers comprehensive solutions designed to navigate the complexities of debt collection while protecting your reputation.
Ready to take control of your debtors? Reach out to SECS today to ensure a smooth and efficient debt collection process.
