Paying a collection fee should not be a deterrent when assessing potential placements of overdue balances. The collection fee represents a small portion of what is placed in lieu of a potentially much larger loss. The return of 80 cents on the dollar is much more attractive than writing off $1.00 as uncollectable. For the average company, for every $1.00 written off, $17.00 in sales must be generated to cover the loss before profit making resumes. (See SALES/LOSSES/PROFITS.)


If the “markup” of what was purchased by the debtor exceeds the collection fee rate then there is no loss if the amount placed is collected – just a smaller gross profit. Therefore, “markup” is another factor to consider in the decision-making equation.


FEE RANGE SCHEDULES – Provided an agency collects without attorney assistance the fees typically range from 33% to 10% with the average being 25%. Williams & Williams Preliminary Rates are 20% on the first $2,000.00 and 15% thereafter. This means on a $10,000.00 recovery our fee is 16% ($1,600.00).


AGENCY FEE COMPARISON – An agency charging 25% on a $4,000.00 recovery generates a fee of $1,000.00 whereas Williams & Williams, Inc. would only charge $700.00 representing a 30% fee savings.


WHAT’S MORE IMPORTANT THAN THE FEE? – Equally important is the agency’s ability to collect and timely placement. The fee charged is a distant third. Why worry about paying a fee of 16 cents per $1.00 collected when the agency’s failure to collect results in a loss of 84 cents for every dollar placed. A collection fee represents 1/3 to 1/5 of the Amount Collected whereas the Net represents 2/3 to 4/5 of the Amount Collected.


FEE DIFFERENTIALS AMONGST AGENCIES – The fee is always paid when an amount is collected; therefore, only the difference in fees can affect the “Net” (differential) amount returned. Comparing the highest agency fee charged with the lowest agency fee usually means a difference of about 10% or less. Therefore, the “rate difference” can only affect each $1.00 netted by 10 cents or less. An ineffective agency means a “ZERO NET”. An effective agency therefore returns 85 cents (15% rate) to 75 cents (25% rate) on each dollar collected. Accordingly, if competing agencies happen to deliver the exact same results, which are impossible, then the rate differential still affects the Net only minimally.


PLACEMENT TIMING – It may sound impossible; however, after deducting collection fees, Williams & Williams, Inc. has been able to return as much as 80 cents for every dollar placed. Similar results can be achieved when balances are placed at 60 days past due. According to a Commercial Law League of America survey (see CLLA SURVEY) the probability of collecting a commercial overdue balance decreases at a rate of 10% per month during the first 8 months of being past due. Therefore, determining at risk, overdue balances early and then taking action is a major contributing factor to the “net return” on placed accounts. Establishing an EARLY DETECTION Program is instrumental in reducing losses.