Glossary · Collections
Collection agency
Also called Debt collection agency
A collection agency is a firm that pursues unpaid debts for a creditor, usually for a percentage of what it recovers.
A collection agency takes over an overdue account once the creditor’s own efforts have failed. Commercial agencies specialise in business debts; they write, call, negotiate payment plans and, if needed, coordinate legal action.
Most charge a contingency fee — a share of the amount recovered, often higher for older or smaller debts — so nothing is due if nothing is collected. Some also charge a flat fee per account. Older debts are harder to collect, so handing over at 90 days recovers more than handing over at a year.
Placing an account with an agency usually ends the customer relationship, so it is a last step before court rather than a routine one. In the US the Fair Debt Collection Practices Act covers consumer debts only; collecting business debts is governed mainly by contract law and state licensing rules.
Example
After 90 days and a letter before action, a supplier places a €7,500 debt with a commercial agency on a contingency basis. The agency recovers it in full and keeps its agreed percentage.