Southern has a number of programs for our various clients for collecting their unpaid debts. What we do, when we do it, and what we charge can vary depending on the program and contract for each client. How do we arrive at our fee schedule? I was recently asked if our fee is still “half” of what we collect. It has been more than 20 years since our standard fee was near 50%! But that is the stigma for our industry, and even long stretches of time don’t seem to change the perception we “take half” of what we collect.
Our fee is dependent on several factors, including the type of debt and industry our client is from; average balance of the debt we are hired to collect; the number of accounts placed; legal and credit reporting options for those debts; documentation backing the debt; and other factors that can change the basic fee. Is the debt a commercial claim (business-to-business sale?) or consumer transaction? There are significant differences in the laws governing the collection of these debts, the options available to collect, and the resource investment required to collect. Like most businesses, we give volume discounts! That said, most of the accounts placed with our office are not collectible, but we have to work every one. So each account will have an expense, but only about one third will produce revenue. (Imagine running your business when only 30% of the people you serve will pay you!) Sometimes, a person pays right away. Sometimes they don’t pay for years, and we invest hundreds or thousands of dollars trying to recover your money. Our fee accounts for the fact most people pay after considerable time and effort, and a few pay with one or two calls or notices.
Once in a while, one of our clients asks why we get our full fee when a person paid within a few days of placement. The fee for that collection may seem high based on the amount of time and effort for that single account, but our fee schedule is based on collecting all of your accounts over time, and most of them will cost money and not produce revenue. Some people pay right away because we have a history with them. Some people wait until they are turned to collection.
Either way, we have done the work we were hired to do and just like your business, Southern should be paid for the work we have done. Most of our clients have exhausted their efforts when they finally assign an account for collection, and expect us to “get to work” as soon as possible. Some clients also want us to send letters without expectation of getting a fee if the person responds. This can be an effective part of a businesses collection program, but can also be a disincentive for collection work to take place. The key is finding the balance between the work your office does prior to assignment, expectations for work by Southern once the account is placed for collection, and the best value for a fee schedule for your portfolio of bad debt.