Hire a debt collection agency

Is your business struggling with unpaid invoices? A debt collection agency can help. Unpaid invoices can be a major headache for any business, affecting cash flow and hindering growth. A collection agency can help recover outstanding debts and stabilize your finances. In this article, you'll learn how debt collection works, the benefits it offers, and what to consider when hiring a collection agency.

What is debt collection and why should you use it?

Unpaid invoices reduce liquidity and can slow business growth. The reasons for non-payment vary – from simple forgetfulness to financial difficulties on the debtor’s side. A debt collection agency specializes in recovering outstanding amounts, helping businesses maintain financial stability.

A collection agency acts on behalf of creditors, using expertise and resources to encourage debtors to settle their overdue payments.

What are the benefits of using a collection agency?

You can either handle debt collection internally or outsource it to professionals. A specialized agency offers several key advantages:

• Faster and higher recovery rates: Experts increase the chances of successful collection.

• Cost and time savings: Your team is freed from collection tasks, reducing administrative costs.

• Legal compliance: Professionals ensure all collections adhere to regulations.

When should you hire a collection agency?

Timing is crucial! Consider hiring a debt collection agency if:

• Invoices remain unpaid after multiple reminders.

• The debtor ignores reminders or continuously makes excuses.

Acting quickly increases the likelihood of successful recovery!

How many reminders before sending a case to collections?

Many believe multiple reminders are necessary before involving a collection agency. However, even ignoring a single payment reminder can justify taking further action.

Can you hire a collection agency without sending a reminder?

Yes, in B2B transactions, payment is automatically considered overdue 30 days after the invoice date—no reminder is required. In such cases, you can immediately engage a collection agency.

The longer you wait, the lower the chances of recovering the debt.

Using a collection agency isn’t just about recovering what’s owed—it’s a proactive measure to prevent cash flow issues and maintain financial stability.

Who can hire a collection agency?

Anyone with a legitimate overdue claim can engage a debt collection agency—whether an individual or a business. However, you must have clear proof of the claim, such as an invoice or contract.

Both individuals and businesses across all industries can use collection services to recover unpaid debts. The process is legally regulated and requires a valid proof of the outstanding amount.

What’s the difference between B2B and B2C collections?

B2B collections: Contract terms and conditions play a crucial role. Agencies can take legal action more quickly as business relationships are typically well-documented.

B2C collections: Consumer protection laws apply. Flexible payment plans are often offered to avoid financial hardship for individual debtors. Agencies must comply with strict legal requirements to ensure fair and transparent collection practices.

Each sector follows different legal frameworks and collection approaches.

How much does it cost to hire a collection agency?

Collection costs typically include:

• A base fee for case processing

• A success-based commission (a percentage of the recovered amount)

• Additional expenses for address verification, credit checks, etc.

Costs vary by provider and service level. However, in most cases, collection fees are charged to the debtor. Specific regulations under consumer protection laws dictate these costs, which can be calculated using our debt collection fee calculator.

Most agencies work on a success-fee basis, meaning they only charge if the debt is successfully recovered. These fees typically range from 10% to 30% of the collected amount.

Additional charges may apply for legal fees or investigations if necessary. Some agencies offer flat-rate pricing or subscription models, which can be beneficial for businesses with frequent collection needs.

"Hire a collection agency for free"—is that possible?

Yes. Collection fees are legally regulated and are directly claimed from the debtor. This means you don’t have to make upfront payments. The recovered funds are split between your principal claim and collection fees.

With our collection service, there’s no financial risk for you. Visit our "Pricing" section for a full breakdown of costs and fees at Debtist.

What are late payment damages in debt collection?

Late payment damages refer to financial losses incurred due to a debtor’s delayed payment. As the creditor, you have the right to claim these additional costs from the debtor.

Legal definition and basis

Late payment damages are governed by law, specifically in the Civil Code §§ 286 bis 288 BGB, which outlines:

• Creditors can claim reimbursement for necessary and reasonable collection costs.

• Costs must be documented and justified.

Components of late payment damages

Common expenses that can be claimed include:

• Late payment interest (typically 5% above the base rate for consumers, 9% for businesses)

• Reminder fees

• Collection costs

• Attorney fees

• Additional expenses (e.g., address verification, credit reports)

Collection agencies claim these damages on your behalf, ensuring that all legally permitted costs are recovered.

How to hire a debt collection service

Recovering outstanding debts requires proper preparation before initiating the collection process. Here’s what you need to know:

1. What do you need to engage a collection agency?

Gather all relevant documents before hiring a collection service, including:

• The original invoice

• Payment reminders

• Correspondence with the debtor

• Contracts or order confirmations proving the service or product was delivered

These documents provide the legal foundation for collection agencies to effectively pursue the debt. A well-organized file speeds up the process and increases success rates.

2. Choosing the right collection agency

Selecting the right agency is crucial for successful debt recovery. Consider the following factors:

• Industry expertise

• Transparent pricing

• Positive reviews and references

• Use of modern technology and efficient methods

For a more detailed guide, check out our article on choosing the right collection agency.

Collection agency or lawyer?

For simple cases, a debt collection agency is usually quicker and cheaper than a lawyer. A lawyer is only the better choice for legally complicated claims. If necessary, they will also initiate legal dunning proceedings.

Lawyers, on the other hand, can be valuable if legal conflicts are expected or the situation is very complex. Both options have their strengths, depending on the specific circumstances of the case.

International debt collection

If your debtor is located abroad, you’ll need a collection agency with international expertise. Consider:

• Different legal systems in each country

• Language and cultural barriers

• Longer processing times and potential higher costs

Debtist specializes in digital debt collection and handles claims worldwide. You can submit cases online or request a consultation. Find out more about us.

3. Assigning the case and transferring claims

Once you choose a collection agency, you’ll need to officially assign the case. Provide the agency with all necessary details, including:

• Debtor’s contact information

• Invoice details

• Supporting documents

Once the case is submitted, the collection process begins.

The debt collection process

Once all preparations are complete, the collection agency will send a formal payment request to the debtor. This demand letter emphasizes the urgency and legal validity of the claim, increasing the pressure to settle the debt.

If the debtor does not respond, the collection agency escalates efforts through further reminders, phone calls, and negotiations. The goal is to reach an agreement without legal proceedings.

Many debtors choose to pay in full or arrange a payment plan once contacted by a collection agency. The primary objective is to recover the debt efficiently while avoiding lengthy court cases.

Intensive cooperation with debt collection

Successful processing requires active cooperation with the debt collection partner. Keep the debt collection agency up to date with any developments or feedback from the debtor. A reputable debt collection company will also keep you regularly informed about the debt collection process.

Debt collection process: phases after the assignment

Debt collection work is divided into three main phases in order to collect debts efficiently if you wish to commission a debt collection agency.

• Out-of-court debt collection: In this phase, the debt collection company attempts to collect the debt without going to court. This includes reminders, phone calls and negotiations to reach an amicable solution.

• Judicial dunning procedure: If the previous measures are not successful, legal action follows. This includes applying for a payment order and initiating legal proceedings to obtain an enforcement order.

• Post-judicial debt collection: After successful judicial debt collection, the debt is enforced by force. This can include seizure of the debtor's income, accounts or assets in order to collect the outstanding amounts.

Legal requirements: What you need to know

You can instruct a debt collection agency if an invoice is justified and the debtor does not pay on time. The following requirements must be met.

1. Due date of the claim: The claim is due after the service has been rendered or according to the contract or general terms and conditions. It must not exceed the statutory limitation period of three years.

2. Justification of the claim: It must be possible to prove that the services were provided as agreed. There must be no justified objections from the debtor. This also includes compliance with all agreed quality standards and delivery dates.

3. Default of payment by reminder: In the B2C sector, the debtor must be sent a written reminder in order to put them in default legally. In the B2B sector, default occurs even without a reminder after 30 days from receipt of the invoice. This provision applies in accordance with Section 286 (3) BGB unless otherwise agreed. However, there are also exceptions according to § 286 Para. 2 BGB.

   • If a fixed date is specified for the service.

   • If the performance is due after an event and the reasonable time for performance can be calculated.

   • If the debtor seriously and definitively refuses performance.

   • If immediate default is justified for special reasons and after weighing up the interests of both parties.

Conclusion: Finding the right collection partner

A collection agency can help you recover outstanding debts efficiently. With the right preparation and partner, you can safeguard your cash flow.

However, debt collection is just one part of a broader financial strategy. A combination of prevention, strong internal processes, and external support will yield the best results.

Ready to hire a collection agency?

Start today and ensure your business stays financially healthy. Get in touch with us now!