When establishing your contingency fee schedule with a collection agency you may want to know what "netback" means.  No, it's not necessarily the lowest fee you can get.  It is the fee that will "netback" to your company the largest amount of money.

You won't hear the term from most collection agency sales people.  What they want is your business and their commission checks.  You would hear the term if you were talking with the collection agency owner.  They are the people who have a vested interest in getting and keeping your business by creating a long-term "win-win" relationship.  To make it clear, let's look at the following example:

Agency "A" @ 20% contingency fee receives $100,000 of your receivables.

Agency "B" @ 30% contingency fee receives $100,000 of your receivables.

Agency "A" at the end of a year has recovered $15,000 at a 20% fee netting your company $12,000.

Agency "B" at the end of a year has recovered $20,000 at a 30% fee netting your company $14,000.

It is clear that the agency charging you the higher rate actually netted back to your company $2,000 more.  You were just the recipient of the "netback" process at work, but how does it work?

Quite simple, Agency "B" could afford to spend more time, money and effort recovering your claims.  Not to mention the fact that, if those agency collectors are on commission, it is just human nature to focus on the $5,000 claim at 30% versus the $5,000 claim at 20%.  And, most really great professional agency collectors would usually insist on some type of commission schedule in addition to their salary.  It's inherent in the industry.

Agency "B" was also able to spend more money on skiptracing, communications, asset locating, etc., and they could afford to add emerging technology as times change.

So, when negotiating rates, consider "netback" and creating a "win-win" relationship as the higher priorities, instead of which collection agency will give you the lowest rate, which may mean lower results, effort and quality of service.  With that viewpoint in mind you may be on your way to establishing a long term, mutually prosperous relationship with your agency.

by Richard Johnson - San Diego California