Guide

Hiring a Collection Agency: Costs, Contracts and Questions to Ask

Updated October 15, 2026 · CollectionPlacement editorial team

Short answer: Hiring a collection agency usually means signing a placement agreement, sending account files, and letting the agency contact your debtor in exchange for a contingency fee on what it recovers. Before you sign, read the fee schedule, the term and cancellation clauses, how direct payments are treated, remittance timing and who approves legal action.

How the process works

  1. Compare agencies and get quotes (or get matched).
  2. Sign a placement or service agreement.
  3. Send account documentation. See what to prepare.
  4. The agency contacts the debtor, negotiates and reports back.
  5. Collected funds are remitted to you minus the agreed fee.
  6. Unresolved accounts may be closed, returned or forwarded to an attorney with your approval.

Contract terms to read carefully

  • Fee schedule: rates by age, balance and type; legal-forwarding rates
  • Direct payments: whether a fee applies if the debtor pays you directly
  • Settlement authority: whether the agency can accept less than the full balance without asking you
  • Legal action: whether suit needs your written approval, and who pays costs
  • Term and cancellation: how to withdraw accounts and any fee on withdrawal
  • Remittance and reporting: frequency and format
  • Compliance and data security: licensing representations, indemnities and, for medical accounts, a HIPAA BAA

How long it takes

Some accounts resolve within weeks of the first letter. Others take months, especially if they need payment plans or litigation. See how long debt collection takes.

Questions to ask before you sign

  • What share of your work is my debt type and industry?
  • Which states are you licensed or bonded in?
  • What is your full fee schedule, including legal forwarding?
  • How and when do you remit funds?
  • What reporting will I get?
  • Can I withdraw accounts, and on what terms?

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Not legal advice. This article is general information, not legal advice, and laws vary by state and change over time. CollectionPlacement is a referral service, not a law firm or collection agency. Consult a licensed attorney about your situation.

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Frequently asked questions

Do I need a contract to hire a collection agency?

Yes. Agencies use a written placement or service agreement setting out fees, authority and terms. Read it carefully before placing accounts.

Can I cancel a collection agency agreement?

Usually yes, according to the agreement's cancellation and withdrawal terms. Some charge a fee on withdrawn accounts, especially after work has started.

Who decides whether to sue the debtor?

Usually the creditor. Most agreements require your approval before an account is forwarded for litigation, but confirm this in the contract.

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