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- Understanding the Role of the Accounts Payable Department
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- Selecting a Third Party Collection Agency
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Flat Rate Collections
Collection agencies are permitted to use various methods for charging for their services. Most collection agencies charge a percentage of the amount collected. Most collection agencies classify the amount owed as being contingent on their ability to collect the outstanding debt. There are a relatively small number of collection agencies that charge a fixed flat rate fee for debt collections as an alternative to a contingent collection fee.
It should be noted meaning that credit professionals should be aware that most third party collection agencies charging a flat fee for their third party collections limit their effort to sending a series of collection or payment demand letters to the debtor company. The drawback to sending written demand letters is that they are eaily ignored or discarded by a delinquent debtor.
Once again, credit managers need to know that when it comes to third party service providers including commercial collection agencies, you often (usually??) get what you pay for... or in this case what you do not pay for in terms of a larger contingent collection fee in exchange for a more involved collection effort that clearly has a greater likelihood of being effective collecting past due balances.
© 2010 by Michael C. Dennis. All Rights Reserved. Excerpted from "Credit and Collection Handbook" by Michael C. Dennis