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Tuesday, December 9, 2008

How does a Collection Agency get paid

By JR Rooney

One of the main benefits to working with many collection agencies is that you only pay them when they successfully recover your money. This means if the collection agency fails to collect money on your behalf, you don't owe a penny.

However, this is not always the case. If you have some small accounts under $500, some collection agencies may require a flat fee to handle those accounts to make it worth their while.

Collection agencies earn their money by taking a percentage of the money the debtor owes upon successful collection. This percentage can range from 10% to 50% with the most common percentage being between 25% and 40%.

The amount the agency keeps is typically based on the age and the dollar amount of the claim. The older the debt the more difficult it is to collect and the agency will require a much higher fee to go after that debt. You should factor in how difficult it will be to collect. Certain debts are riskier to collect and therefore require a higher the percentage.

Some agencies will charge you for several other charges related to their collection efforts including fee-based background checks, court costs, filing fees, and long-distance telephone calls.

Before a collection agency will work a single claim, they will write up an account release form that details the terms of your working arrangement including their responsibilities, the fees, any additional expenses, and customer service policies.

Be sure to read the account release form over carefully for any fine print or contract language that seems confusing. If you notice discrepancies in the contract, make sure the agency fixes the problems immediately before asking you to sign it.

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