Question 1

Most collection agencies make you sign a contract

Accepted Answer

MYTH – The vast majority of commercial collection agencies do not require their clients to sign a contract prior to accepting a placement. That said, depending on the circumstances (volume discounts, etc.), a contract might be warranted and appropriate for both parties. Just like any contract it is critical that you read the fine print. If there are penalties involved for cancelling accounts or if the agency wants it in writing that they can keep working your placement in perpetuity you should seriously question if that agency has your best interest in mind.

Question 2

You can add collection fees to your account even if you don’t have a written agreement

Accepted Answer

FACT – The majority of US States do not have laws that prevent you from pursuing collection fees without an agreement. There are a few states that license Commercial Collection Agencies and allow you to pursue collection fees as long as you have a written agreement in place at the time of service and there are actually only three states where you may not legally pursue collection fees at all.

Question 3

If I want to cancel an account, I should have to pay a cancellation fee

Accepted Answer

MYTH – A reputable agency should never charge you anything to cancel an account unless they can illustrate that their efforts have altered the debtor’s position where there is now a high probability that they will pay. Clients should keep in mind that most agencies work on contingency which means the agency can’t earn their fee if they are not working the account so cancelling an account eliminates their opportunity to earn their fee. That said you should NEVER pay a cancellation fee to a collection agency unless they can clearly illustrate that their efforts have resulted in a payment or will soon result in a payment. In these cases it is acceptable to work out some form of renumeration with your agency.

See our section above on “contract” as some less reputable agencies will insert unfair language into their contract that legally binds you to a cancellation fee even if the agency has no prospect for payment.

Question 4

It is standard practice for collection agencies to hold my money 30‐60 days before they remit

Accepted Answer

MYTH – Any agency that asks for more than 30 days to remit your money on successful domestic collections is simply taking advantage of you. Any agency that collects money should “age” a debtor payment properly prior to remitting those funds to their client but this aging process should take no more than 4‐ 7 business days for any domestic payment (clearing times with Canadian banks can be much longer so this could be an exception to this rule). In summary there is no reasonable excuse for why a collection agency would need to hold your remittance longer than 3‐4 weeks from the date the debtor paid. See our section above on “contract” as some less reputable agencies will insert unfair language into their contract that legally binds you to a cancellation fee even if the agency has no prospect for payment.

Question 5

Collection agencies get a percentage of anything they collect including interest, collection charges, accelerated balances, late fees, etc.

Accepted Answer

FACT – Since collection agencies work on a contingency basis, they should be paid a percentage of every dollar they collect on your behalf. If you have a legitimate reason why you don’t think your agency should get paid on a certain charge that is being added to the account you would need to negotiate that prior to engaging the agency for the account in question. See our section above on “contract” as some less reputable agencies will insert unfair language into their contract that legally binds you to a cancellation fee even if the agency has no prospect for payment.

Question 6

A collection agency only needs to be licensed in the state that they reside

Accepted Answer

MYTH –

There are 20 states that require a commercial collection agency to be licensed and/or bonded in that respective state in order to conduct collection activity and/or the solicitation of clients. It is critical that prior to engaging a collection agency you make sure they are properly licensed in the state where your customer resides. Additionally, in certain states, the agency must also be licensed to solicit your business and represent your interests. If your agency is not properly licensed in the state where both you and your customer reside, it could cause legal issues for you as the company that hired said agency. See our section above on “contract” as some less reputable agencies will insert unfair language into their contract that legally binds you to a cancellation fee even if the agency has no prospect for payment

Question 7

I am legally able to add interest to my balance

Accepted Answer

FACT – In most states you may add interest to the balance you place for collections without a prior agreement stating as much. However, there are 7 states that require you to have a written agreement in place at the time of service if you intend on adding interest to your balance. Also, it is important to remember that in most cases the max allowed is 18% per annum or 1.5% per month.

Question 8

If a debtor pays a client directly, they are still obligated to pay the collection agency their fee

Accepted Answer

FACT ‐ Frequently debtors don’t trust collection agencies and prefer to send the money directly to the client. The debtor paying the client directly instead of sending the money to the agency has no bearing on whether or not the agency earned their fee. If a debtor pays the client directly after the collection agency has begun work on the account the agency’s fee was earned and they need to be paid.

Question 9

All collection agencies report your debtors to credit reporting agencies

Accepted Answer

MYTH – In order for a collection agency to be properly set up to report debtors to credit reporting agencies, the collection agencies are obligated to report “all” of the debtors to the credit reporting agency and are not allowed to pick and choose which debtor gets reported. In addition, the commercial credit reports are used in a much different way than consumer credit reports and the impact that is achieved by reporting commercial debtors to the credit reporting agencies is significantly less than the impact it has on consumers being reported.

Question 10

Commercial collection debtors are also protected by the FDCPA (Fair Debt Collection Practices Act) just like consumers

Accepted Answer

MYTH ‐ The FDCPA specifically protects consumers only. The FDCPA does not govern any monetary transaction that takes place between two companies. While many commercial debtors (and believe it or not many attorneys that represent commercial debtors) attempt to cite FDCPA violations, commercial collection agencies are under no restrictions cited by the FDCPA.

Question 11

My customer shut down and re‐opened under another name. Now my collection agency says they can’t pursue them

Accepted Answer

FACT – If the entity in question was incorporated, without a signed personal guaranty it would be illegal for a collection agency to pursue that debt. While it is very frustrating and not at all fair, there are laws in place that govern these actions when the debtor company was organized as a corporation or an LLC and is no longer operating. The exception to this is the presence of a signed Personal Guaranty or if the original business was created as a partnership or a proprietorship.

Question 12

My customer filed bankruptcy, I never received a notice and yet my collection agency says they still can’t work it

Accepted Answer

FACT – Just because a creditor does not receive a bankruptcy notice doesn’t mean that they were not included in the bankruptcy filing and/or would be included once the oversight was realized. A debtor company can’t pick and choose which creditors they include on the bankruptcy filing so the mere fact that they filed means they are now under bankruptcy protection laws and within those laws it is illegal for a collection agency to pursue a debt while under bankruptcy protection.

Question 13

My company resides in one state and I have a judgment from a customer who resides in a different state and I was told I could garnish my customers account right away – MYTH or FACT?

Accepted Answer

MYTH ‐ Unless you have already had an attorney file the proper paperwork to domesticate
your judgment in the customer’s state you are not able to levy a garnishment. Until your
judgment is domesticated you only have a piece of paper that states you are legally owed money.