LET’S TALK ABOUT “RATES”

 
 

 

Some general “Rules of Thumb” pertain to what rate you should be willing to pay for a debt recovery service. Most of them are material to the “collectibility” of a given account, and include:

 

1. ALL RATES ARE NEGOTIABLE.
2. RATES FOR INTERNATIONAL DEBT RECOVERY TEND TO BE HIGHER THAN RATES FOR DOMESTIC ACCOUNTS
3. RATES FOR LARGER ACCOUNTS OR FOR BATCHES OF ACCOUNTS TEND TO BE LOWER THAN FOR SMALLER ACCOUNTS OR INDIVIDUAL ACCOUNTS.
4. RATES FOR OLDER ACCOUNTS TEND TO BE HIGHER THAN RATES FOR MORE-RECENT ACCOUNTS
5. RATES FOR ACCOUNT THAT HAVE BEEN PLACED FOR RECOVERY PREVIOUSLY, OR AS TO WHICH A JUDGMENT HAS BEEN OBTAINED, ARE HIGHER. 

 

Years ago, the “normal” rate for law firm collections may have been 1/3 of the amount collected. Years ago, the “normal” rate for international collections may have been 50% of monies collected. Those rates have changed, almost exclusively downward, due to the competitive nature of the industry, as it has matured. In today’s market, I have seen rates as low as 5%, for domestic accounts, first placements, amounting to several tens of millions of dollars, where the companies are still in business, where there is a personal guarantee on most of the individual accounts and the delinquency is no more than 120 days.

 

Did I personally give this rate? No. Would I ever give this rate? Never. More to the point, if I were a company with a debt to place for collection, would I be wise to WANT or try to NEGOTIATE this kind or rate? In my opinion, no.

 

Why- isn’t getting something for LESS better than paying MORE? Well, not always. EXAMPLE: Would you shop for a BRAIN SURGEON on the sole basis of who would do the procedure for the absolute least amount?  Would you shop for AN INVESTMENT ADVISER on that basis?  How about a babysitter, or a bungee-jump instructor?

 

The point is, obviously, that not all debt recovery entities are created equal. Professional training and education and experience vary widely. An intelligent “shopper” keeps those very important factors in mind as well.

 

Also, while every account must be worked to its conclusion and time, and perhaps monies, expended in that effort – not every account will be collected, and the rates have to reflect that fact in order for a debt collection entity to stay in business. And, the higher the rate, the more time and monies such debt collection entity can afford to spend on its attempts to collect that particular.

 

Ok, having said that, what do I consider a “fair rate?”- One that allows every necessary expenditure in time and money to be made, in order to maximize the chances for its successful collection?

 

Fair and competitive International rates: in order to maximize the chances for successful collection of the account, should range from 25% to 50%, depending on the factors above, with lower rates for exceptional circumstances.

 

Fair and competitive domestic rates: should range from 20% to 35%, again depending on the factors above and with lower rates for, once again, exceptional circumstances.