Should I Pay for Collections Up Front?

After reading Article #1 titled "Is Your Business Owed Money?" in my series of "Recover Your Business Profits" blog posts, your business should have concluded to use a third party which is a profit recovery company to free up those profits which are tied up in late past due accounts receivable.



Another critical question that must be asked before selecting which profit recovery company to use is, "Do I have to pay upfront before I get the money I am owed recovered?"

Some profit recovery companies charge the creditor a flat up front fee per submitted debtor account.
The immediate thought in most creditors' mind is to ponder about why in the world they should pay for a recovery that has not yet happened.  The creditor feels they do not want to pay before a recovery occurs since they believe the profit recovery company will work harder if they only get paid when the debt is recovered.  Most creditors initially instead want to work on a contingency basis so they only pay after the debt is recovered.  This drives some creditors towards working with a standard collection agency that operates on a percentage contingency basis rather than working with the up front flat fee profit recovery company.

The fallacy with this belief is that collection agencies are really NOT paid after the creditor collects the money owed!

Infact, ALL collection agencies, debt recovery companies, and profit recovery companies ARE paid
before you, the creditor, are paid the money that is recovered.  It is unfortunate but many creditors fall into the trap of believing that collection agencies working on percentage contingency basis are only paid after the recovery.

You as the creditor must think carefully through the cash flow trail of a collection or recovery as money is recovered from the debtor until the point it actually arrives in your pocket. 

So let's take a look at the typical collection agency-to-creditor cash flow assuming the debtor owes $100:
     1) debtor is contacted by the collection agency and is coerced
         into paying
     2) debtor sends the $100 to the collection agency just as
         demanded
     3) collection agency receives the creditor's $100 from the debtor
     4) collection agency takes their 30% to 50% fee or $40
         (assume mean fee)
     5) collection agency holds the remaining $60 owed to the creditor
         for another 30 to 60 days (earning interest on the creditor's
         held money owed and impacting the creditor's cash flow further)
     6) collection agency sends the $60 to the creditor
     7) creditor receives the net back of $60

In summary, who got paid first, you the creditor or the collection agency?  Yes, the collection agency did!

Next, let's take a look at the typical profit recovery company-to-creditor cash flow assuming the debtor owes $100:
     1) profit recovery company receives its up front fee of $10
         from the creditor
     2) debtor is contacted by the profit recovery company and is
         coerced into paying
     3) debtor sends the $100 direct to the creditor just as demanded
     4) creditor receives $100 from the debtor for a net back of $90
         after the profit recovery company fee is considered.

In summary, who got paid first, you the creditor or the profit recovery company?  Yes, the profit recovery company did!

Now that it is clear collection agencies and profit recovery companies both get paid their fees first before you, the creditor, get your money, if you are assured both will recover the money owed from the debtor then which would you prefer to hire?  Would you want to get $60 net back or $90 net back?  Few creditors would choose the $60!  So, yes, the profit recovery company is the better choice when recovery performance from both is assumed equal.  If you choose a profit recovery company with a top industry recovery rate then there is no question that it is the best business decision based upon the financials.
 So do not ponder over not paying up front for a recovery since all collections are paid for up front.  Instead, ponder over recovery rate and net back!


To inquire about how you can work with a profit recovery company that has an average 56% recovery rate in 40 days for accounts turned over before they exceed 90 days late and where the debtors pay you what is recovered directly while you only pay the profit recovery company an up front flat fee of @$10 per late past due account


call us at:

818-710-0244


Series: "Recover Your Business Profits"
Article: #7 "Should I Pay for Collections Up Front?"