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How much does debt collection cost?

Using a professional debt collection agency can be extremely effective and costs less than you think. Chasing a debtor who hasn't settled on time can be frustrating and it can also take up valuable time and resources.

The good news is that putting the collection of your debt in the safe hands of a professional debt collection agency is not only an effective solution, it is also affordable. Using this method, you’re more likely to get the majority of your money back, rather than simply having to write the debt off.

How to get the best value from a debt collection agency

It makes sense to choose a debt collection agency that works on a commission-only basis, with a 'no collection, no commission’ guarantee. That way, you won't be landed with any up-front charges, and you won't need to worry about escalating costs. It also ensures the agency works quickly and efficiently, because it's as much in their interest as it is yours to see the debt settled as promptly as possible.

The other main attraction of this arrangement is flexibility. There's no need to commit to a long-term contract (unless you want to). And when it comes to taking things to the next level, you're in control. A good debt collection agency will offer a range of add-on services, such as expert advice and guidance on taking legal action or instigating insolvency proceedings.

So, if a debtor is proving particularly stubborn and even the debt collection agency is drawing a blank, you have two choices. You can simply cut your losses; in which case you've only lost the value of the debt. Alternatively, you can weigh up your options, assess the cost and time implications of taking further action, with no obligation to commit unless you think it makes sense to do so.

Referring the debt as soon as possible can also help limit your exposure. Debt collection agencies are generally much more successful in collecting debts which are less than six months old. In addition, earlier referral decreases the likelihood that you'll incur legal costs in chasing the debt.

How you can recover some of your costs

Providing the debtor is a business, you're legally entitled to recover reasonable debt collection costs by adding them to the value of the outstanding debt. The amount you can charge ranges from £40 for a debt of up to £999.99 to £100 for a debt of over £10,000.

You are entitled to charge an amount over and above one of these fixed sums if you can prove that it doesn't cover the reasonable costs of recovering the debt.

You can also charge the debtor interest on the outstanding debt. The interest rate you can levy is fixed at 8% above the Bank of England base rate.

The other way it’s possible to recover your costs is if you have a recoverable clause in your terms and conditions. If you are unsure whether you have this, a reputable agency will be able to advise you and offer a service to update this for you so that you are protected in the future.

Why your internal debt management processes matter

Even if you're relying on a debt collection agency to achieve settlement of your overdue debts, it still pays to have robust and well-structured internal credit control and debt management processes in place. By keeping a close eye on your sales ledger, sending out timely reminders and engaging with debtors who have missed payment deadlines, you'll be able to refer high-risk cases more quickly. That means reducing the risk of those cases becoming more serious than they need to be.

Why not just use a solicitor?

Using a debt collection agency is generally more cost-effective than retaining a legal professional to chase a debt. Most high street solicitors will charge an hourly rate, billing you for everything they do, from writing a letter, sending an email, or making a phone call to providing advice on legal action and filing the relevant documentation.

A cost-effective partner

At Redwood Collections, we provide high-quality debt collection services, with a typical commission rate of 15%. So, however long it takes us to recover the debt, you'll have peace of mind knowing exactly how much it will cost you. We also offer premium solutions offering added value in return for more regular commitment, as well as a suite of ancillary options, such as legal and insolvency services, trace and investigation, and asset tracking. With our expert help, your business can Grow Stronger.

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