Provider guide · Collection agencies
What a collection agency is, and when to use one.
A collection agency recovers unpaid debts on your behalf and keeps a share of what it collects. General information, not legal advice.
Types
Four kinds of collector.
First-party agency
Contacts the client under your business name, usually early (30–90 days overdue). Often a flat fee per account.
Third-party agency
Takes over the account under its own name. Usually paid on contingency — commonly 25–50% of what it recovers.
Collection attorney
Can send legal demand letters and file suit. Best for larger or disputed invoices; fees vary by firm.
Debt buyer
Buys the debt outright for a fraction of its face value. You get less, but get it now, and the debt is no longer yours.
How to choose an agency
- Licensed and bonded in the debtor's state (check the state regulator's lookup).
- Handles business-to-business (commercial) debt, not only consumer debt.
- Fee in writing: contingency rate, any minimums, and who pays court costs.
- No upfront fee for standard contingency collection.
- Clear reporting: how often they update you and how recovered money is paid out.
- You can withdraw the account if the client pays you directly.
Is it worth it?
- Example: on a $2,000 invoice at a 35% contingency, you would receive $1,300 if fully recovered.
- Under a few thousand dollars, small-claims court can cost less, and you keep the full award.
- Platform payments may need the platform's dispute process first. Check your terms.
- Consumer-debt collectors follow the federal Fair Debt Collection Practices Act; business debts are mostly governed by state law.