The earlier you start to collect a debt, the better your chances of collecting on it all. So why do so many companies wait to turn over their debts to a collection agency? The answer is simple: traditional contingency agencies cost a lot of money.
Traditional Contingency Agencies
Many business owners, seeing the amount they give up if they turn it over to an agency like this (30-50% is common), choose to spend more time and money trying to collect in-house first, even though their chances of collecting may not be as good.
Let’s look at some numbers. The average cost of attempting to collect in-house before turning a debt over to a contingency agency is about $31 according to research conducted by the Dartnell Institute of Business. Not bad, right? But businesses are spending 80-90% of their collections budgets targeting 10% of debts that violate their terms. OK, so that’s what the collections budget is for, but this is definitely an area in which a lot of money could be saved – it’s a lot of time and effort for less than 10% of your business and no promise of collecting at all. Still, though, it seems better than giving up 50% of unpaid debt to a contingency agency, so many businesses try this method.
But could you drive down your collection costs and still improve the amount collected?
Turning your overdue accounts over to a flat-fee agency is another option that makes a lot more sense. The amount of money and time this model saves a business owner is dramatic enough that it’s almost hard to believe, plus it increases the chances of collecting the debt and still leaves open the option of traditional collections for remaining unpaid debts.
Optio Solutions’ flat fee is less than you would have spent collecting in-house (around $12 instead of $31 per debt), so it improves your monthly cash flow, plus your chances of collecting improve from using collection agency resources, and you still have the option of traditional collections on older debts. The savings your business can realize in early flat-fee collections are nothing short of stunning.
Contingency vs. Flat-Fee Case Study
Don’t believe the savings would be that significant? Here’s a true case story to help illustrate the point.
One of our clients, a university, needed to collect delinquent tuition. Not only would the university need to collect these delinquent amounts, they’d like to keep the students enrolled, so a friendly collections process might help that aim. Before using Optio Solutions, they attempted contingency collections. Their contingency agency took 1/3 of the debt collected. So in a scenario where more than $300,000 in overdue debts was collected, the old agency would have taken more than $100,000 of that back. But Optio Solutions’ flat-fee model cost them less than $1,200 to collect that same $300,000. This university saved more than $98,000 using the early turnover flat-fee model. (We told you it was stunning!)
It would be almost ridiculous to ask if you’d prefer as a business owner to pay $100,000 or $1,200 to collect $300,000 in overdue debt (while freeing your staff from having to collect in-house and while improving the chances of collecting at all) – the answer is just too obvious. The only possible reason for a business owner to not use the early flat-fee model is that they aren’t aware of it or aren’t aware of the dramatic savings they can realize.
But now you know.