How Collection Fees Work in Canada

In Canada, the fees a collection agency charges are usually contingency based, or a no collection - no fee, percentage basis on the actual monies collected. Collection agencies across Canada usually have similar agency fee guidelines for contingency debt collection services. Commercial and consumer collection agency rates are based on age of the debt, the type of debt and the amount of the debt being listed for collection.

It should be mentioned that you should never choose a collection agency based solely on the cheapest rate. For example: A collection agency that specializes in collecting commercial debt should have no problem collecting consumer (personal-individual) debt. However, retail consumer collection agencies usually have lackluster results when they attempt to collect commercial debt.

Age and Collection Fees

Agency fees are based on decades of historical accounts receivable recovery statistics. Basically, the percentage odds of collecting a debt decline with age. As a rule, the older a debt the more resources a collection agency expends to ensure a successful collection.

In turn, a collection agency must charge a higher fee on older accounts. Their collection and tracing costs of recovery correspond to the age of the account being collected. The statistical odds of collecting a one year old receivable are around 25%. This is why agency commission fees are based on an account being under or over one year old.

Commercial Collection Fees

B2B, or commercial debt collection, requires far more expertise and the amounts can be much larger than consumer collections. Unsecured debt owed by limited companies is very time sensitive as companies can disappear overnight. Having the proper paperwork and a personal guarantee improves your chances of getting a lower rate.

Commercial collection fees are also affected by the amount of the debt being listed. Some agencies charge a flat rate on commercial collections, which may be a sign they are not experienced in collecting commercial debt. Commercial collection agency rates are usually based on a sliding percentage for accounts under one year old and the balance being listed for collection.

Commercial rates can range from 10% (high balance accounts) and up. There are many more factors to consider in commercial debt collection compared to consumer. Most of the commercial collection agencies in Canada offer similar contingency fees. A wise commercial creditor always goes with proven commercial experience over a few lower percentage points with another agency.

Consumer Collection Fees

Consumer or retail collection rates are usually much higher than commercial collection rates. In general consumer collection rates are 25% and higher, depending on the balance and age of the account being listed. Most consumer collection agencies offer rate discounts for Clients that list large volumes of accounts for collection.

One thing to make sure of when hiring a consumer collection agency is that they have skilled skip tracers. Skip tracers locate debtors and you cannot collect from someone who can not be found. Locating debtors is one of the biggest barriers to a successful collection for a collection agency.

Legal Fees

As a rule contingency collection fees do not include legal fees. Depending on the balance, legal action may be the only option to recover your debt. Most provinces in Canada have a two year limitation on suing for debt. If the date of the last payment or acknowledgement of debt is over 2 years, you cannot sue the debtor.

If legal action is warranted, the Client is responsible for the legal costs. At IRS, we have an in-house lawyer to keep legal costs lower. Upon collection, legal fees are returned to the Client without any commission being charged on the legal fees. Returning legal cots is standard with most collection agencies in Canada.

Before ever commencing legal action the collection agency should provide you with an estimate of the legal costs for your approval, along with the tangible or intangible assets being targeted and the time frame involved. Large balance commercial accounts in particular can require litigation to extract your money.

We hope the information on how agency fees work in Canada is helpful. If you have any questions give us a call. We also offer the option of scheduling a free consultation on our agency fees for collection.