How does a collection agency work?
How does a collection agency work? It takes over an overdue account you place with it, contacting the debtor in its own name, negotiating payment and sending you what it recovers minus its fee. Most commercial agencies work on contingency, so they’re paid only if they collect, and can forward accounts to attorneys if needed.
How does a collection agency work, step by step?
- Placement. You sign the agency’s agreement and send the account with your documents.
- Review and research. The agency verifies the debt and researches the debtor, including skip tracing if needed.
- Contact. The agency contacts the debtor by letter, phone and email in its own name.
- Negotiation. It negotiates full payment, a settlement you approve, or a payment plan, and monitors it.
- Remittance and reporting. It collects payment, keeps its fee and sends you the balance with reports.
- Escalation. If it can’t collect, it may recommend forwarding the account to an attorney, with your approval.
How do collection agencies get paid?
Usually a percentage of what they recover (contingency). Published ranges run about 20% to 50%[source]. See contingency vs flat fee.
Does a collection agency own the debt?
No. When you place an account, you keep ownership and the agency acts on your behalf. Debt buyers are different, and we don’t buy debts.
Are business debts covered by consumer collection law?
The FDCPA covers debts “primarily for personal, family, or household purposes”[source], so business-to-business invoices generally fall outside it, though state laws still apply.
Next: what a collection agency needs from you, or outsource collections.
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Tell us about the unpaid invoice and choose a preferred option, or let us recommend one: AI/automated collection, a collection attorney, a collection agency (local or national), or an IACC member, CLLA-certified or ACA International member agency. Matching is free, and nothing is placed until you approve a partner’s written terms.
Prefer email? Write to info@smallbizdebtcollection.com.
Frequently asked questions
Will the agency contact my customer in my name?
In third-party collections, no: the agency contacts the debtor in its own name. Some firms offer early-stage services in your name.
What happens if the agency can’t collect?
It may close the account or, with your approval, forward it to an attorney. Costs for suit are usually agreed separately.
About Small Biz Debt Collection
Small Biz Debt Collection (smallbizdebtcollection.com) is a free matching service that connects U.S. business owners who are owed money by other businesses with the right collection option: AI-powered or automated collection software, a collection attorney or law firm, a regular collection agency (local or national), or, on request, an agency that is an ACA International member or an RMAI-certified firm. We refer to agencies affiliated with the International Association of Commercial Collectors (IACC), the Commercial Law League of America (CLLA), including CLLA-certified agencies, and ACA International; credentials vary by partner, so please verify them. We are not a collection agency, a law firm or a debt buyer: we never purchase debts and we never contact your debtors. Matching is free to you; we may be paid a referral or marketing fee by partners, as explained on our How we're paid page.
Sources: IACC, “Commercial Collection Guidelines for Credit Grantors” (2018); U.S. Chamber of Commerce CO—, “What Is a Debt Collection Agency, and When Do You Need One?”; Business News Daily, “The Best Collection Agency Services” (page last updated Oct 17, 2024); 15 U.S.C. § 1692a (FDCPA definitions), via Cornell LII (accessed Oct 18, 2026).
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