Negotiating Fees with Collection Agencies

Most credit managers receive calls from collection agencies on a regular basis soliciting their business. If you are serious about establishing a relationship with a new collection agency, it should be unnecessary to take an adversarial stance when discussing contingent collection fees [or collection rates] with a collection agency. Why? Because a key element of the credit department's relationship with a collection agency is mutual respect. If that respect is not evident when the collection agency quotes fees [for example, when a collection agency quotes a fee structure rate that is above the going rate], there is little reason to continue the discussion.

When you interact with a third party collection agency, you should:

• Deal from a position of strength. Remember that there are dozens if not hundreds of commercial collection agencies to choose from
• Make certain that the agency understands that if a large claim is placed you will ask them to quote a rate below their standard contingent fee structure
• Tend not get too "chummy" with the salesperson. Doing so will tend to adversely influence your decisions

No discussion of collection fees would be complete without at least mentioning that creditors should not select an agency on rates alone. Credit professionals must be concerned with the professionalism and the effectiveness of their collection agency. If you choose to purchase this service on cost alone, you are likely to be disappointed with the results the agency gets. Another way to say this is as follows: "If the rates sound too good to be true, they are!" Competitive collection rates are only one facet of the relationship between a creditor and a collection agency... and these rates should be relatively easy to negotiate.

© 2010 by Michael C. Dennis.  All Rights Reserved.  Excerpted from "Credit and Collection Handbook" by Michael C. Dennis

Edited by Michael Zininberg