Collection fees can help offices offset the costs related to delinquent payments, but offices should take great care before applying them. On the one hand, these fees offset the tremendous cost of collecting payment from consumers with outstanding debt. On the other, the fees can run afoul of state regulators, judges, attorneys and others.
When written clearly and explained well, collection fees serve as a way for you to lessen or neutralize the cost of getting payment – measured in staff time, letters, phone calls and more. Moreover, they can motivate patients to pay before an impressive fee is assessed.
Before adding a collection fee to your accounts receivable processing, consider the following:
- Research guidelines in your state. Some states have strict laws regarding collection fees with the purpose to discourage you from collecting them. Often, collecting them is not worth the potential liability.
- Consult your attorney. Never write a policy for a collection fee without input from your attorney. A collection-fee policy is basically a legal document.
- Write a clear policy that clients read, understand and sign as part of the intake process. Getting a signature is important, especially if you wind up in court. Make sure it is accurate, clear and that your clients understand it.
- The percentage can be no higher than what your collection agency charges. If your agency charges 25 percent you can charge no more than that to clients.
- Confirm the collection agency knows your policy and the percentage you charge. Share all your documents with your collection agency so they are asking for the same percentage and that they understand how you manage delinquent bills.
- Be careful not to make the collection fee excessive. States that allow collection fees charge no more than 30 to 35 percent. Anything higher will get the attention of attorneys and regulators.
- Expect collection fees to be the cost of doing business. It’s not likely that collection fees will do much more than pay the cost of collection. If you charge 25 percent on a $100 bill and get a $125 payment, the agency will get $93.75 – 25 percent of $125. By adding collection fees, however, you’re still ahead. The collection agency that takes 25 percent of $100 will only get $75, not $93.75.
- Collection fees can move to the top of the payment list. A 30 percent penalty can move your invoice to the top of a client’s list of must-pay-now bills. The mere threat of that kind of collection fee makes people think twice about not paying.
- Make sure your process is clear and vetted by attorneys in case of a lawsuit. Collection fees and other charges may become the basis of a lawsuit, should a client of your practice decide to sue. The client’s attorney will decide whether to sue the collection agency, the practice, or both.
Collection fees can be effective in transforming delinquent clients into paying ones. But you want to make certain the language you use is fair, accurate and explained in terms that are understandable to the general public.
About the Author: Brian Eggert
Brian Eggert is a business development specialist and writer for IC System, one of the largest receivables management companies in the United States. With 18 years in the collection industry, Brian's experience includes operations, client service, proposal writing, blogging, content creation, and web development.