Should You Hire an Accounts Receivable Consultant or a Collections Agency?

How each one is paid, and what each fee rewards

This guide quotes no market rates, because the published ones come from the firms selling the service. What each way of paying rewards matters more than the number on the quote.

• Agency on contingency: it keeps a share of what it collects and earns nothing on what it does not. That rewards fast money from the accounts most likely to pay and, where the agreement allows it, a quick settlement for less than the balance. It pays nothing for finding out why the account went bad.
• Billing service on a monthly fee or a share of collections: the first rewards keeping the contract, the second rewards the dollars that come in. Neither rewards the dollars that never reach the service, such as the job nobody invoiced or the change order nobody priced. A billing service can only bill what the company hands it.
• Consultant on an hourly or fixed fee: hourly rewards duration and leaves the estimating risk with the buyer; a fixed fee for a written scope makes the consultant carry its own estimate. A consultant that also sells collections or billing has a reason to find the problem its own service solves.

Across all three, compare what lands in the bank after the fee with what the company’s own follow-up, done properly, would have brought in. A contingency paid on an account that two phone calls would have collected buys nothing.

Is the problem upstream of collections? Five checks first

An aging report shows that an invoice is unpaid, not why. Before hiring anyone, give every invoice more than 30 days past due a row with these five checks, from the invoice list, the job records and the email inbox.

• Invoice lag: the days from finished work to invoice sent. When the invoice goes out three weeks after the job ends, its payment terms start three weeks late.
• Disputes: a questioned line, a short payment, a complaint or a promised credit. That invoice is waiting on an answer from the company.
• Missing paperwork: the purchase order number, signed change order, proof of delivery, sign-off or lien waiver the customer’s accounts payable team needs before it can pay.
• Never received: sent to the wrong contact, bounced, or rejected in a customer’s payment portal and never sent again.
• No follow-up: no reminder before the due date, no call after it, and no named person whose job it was.

Only rows that pass all five are collection problems. Everything else is upstream, and an agency would inherit it unsolved. Illustrative example: a hypothetical contractor lists 40 invoices more than 60 days past due. Fourteen carry a disputed line, nine lack the signed change order or purchase order the customer requires, four went to the wrong contact, six never got a reminder, and seven have clean paper, no dispute and no answer after three documented contacts. Seven are agency candidates. The other thirty-three are the company’s own work, and the pattern behind them is what a consultant would be hired to find.

The order to work in, and the weekly check

The order below puts the cheap fixes first and saves the agency for the accounts that earn its fee.

• The list: the bookkeeper or office manager builds the five-check list and totals it by cause, in dollars.
• The upstream fixes, each with one owner: the project manager answers disputed lines and missing change orders, the office manager resends rejected invoices, and the owner sets the rule that work is invoiced the day it is finished.
• A written follow-up calendar with one named owner, in-house or at a billing service. For example: a reminder before the due date, a call the day after it, a statement at 15 days past due and a final written notice at 45 days.
• A written placement rule, signed by the owner: an account goes to an agency only when it is undisputed, its paper is complete, and a set number of documented contacts got no reply or a broken promise. It names who approves each placement and each settlement.

The weekly check is three numbers, read out by the person who owns receivables: the count and dollars more than 60 days past due; how many of those are upstream against how many are waiting on follow-up; and the oldest open item, with what happened to it this week. If the upstream share has not shrunk after a month, the fixes did not hold. The same split shows where the company’s days sales outstanding comes from, before anyone argues about payment terms.

What to check before handing accounts to a collections agency

The agency collects from the company’s records, answers disputes with the company’s documents and works under the agreement the company signs. This is a plain reading of rule text, not legal advice.

The account file: the signed estimate or contract, every invoice and statement, proof of the work, every payment and credit, the contact log and a current address. For a consumer account, Regulation F requires the validation information a collector gives the consumer to include an “itemization date,” such as “the last statement date” or “the last payment date,” the amount owed on that date, and “an itemization of the current amount of the debt reflecting interest, fees, payments, and credits since the itemization date.” If the company’s books cannot produce those figures, the agency has nothing correct to send. The FDCPA also bars collecting any amount, interest and fees included, unless “expressly authorized by the agreement creating the debt or permitted by law,” so a late fee the signed agreement never mentioned goes to the attorney before it goes on the balance.

The agency: licensing and registration are set state by state. Florida, for one, says a person may not do business there as a consumer collection agency “without first registering,” and exempts an original creditor. Search the agency’s name in the CFPB’s public Consumer Complaint Database and read the complaints and its responses. Then the agreement, in writing:

• Settlement authority: who may accept less than the full balance, and whether each settlement needs the company’s written approval.
• Direct payments and remittance: what fee applies when a customer pays the company directly after placement, how often collected money is sent, and whether before or after the fee.
• Credit reporting, lawsuits and recall: whether the agency reports accounts or files suit without the company’s approval, and the company’s right to take an account back.
• Disputes: how fast the company must send documents. Regulation F’s notice tells a consumer that after a written dispute in the validation period, the collector “must cease collection of the debt, or the disputed portion of the debt,” until it sends verification or a copy of a judgment.
• Calls: Regulation F presumes compliance when a collector calls a person about a particular debt no more than seven times within seven consecutive days, and not within seven days after a telephone conversation about it. Ask how the agency counts.

One check covers the company’s own staff. The FDCPA pulls in a creditor that, collecting its own debts, “uses any name other than his own which would indicate that a third person is collecting,” so an in-house “collections department” with a separate name is a question for counsel first. Some state laws reach further: Florida’s §559.72 opens “In collecting consumer debts, a person may not,” rather than naming debt collectors only.

Medical and dental practices: consultant, billing company or agency?

A practice has two kinds of receivables, and they go to different places: insurance receivables, owed by payers, are claims work for a billing company or an in-house biller, compared in the guide to in-house or outsourced medical billing. Patient balances reach an agency only after the practice’s own statements, calls and final notice, under the HIPAA, billing-dispute and credit-reporting rules set out in the guide to old patient balances.

When to hire none of them, and where the Review fits

Hire no one if invoices go out the day the work is finished, the past-due list is short, and every item has a named owner and a next date. One customer who will not pay calls for a phone call, a final letter or an attorney, not a new vendor. And if the five checks show the past-due money is nearly all disputes and missing paperwork, the fix is inside the company.

The Revenue Review is the consulting option, priced once as a fixed fee and run over two weeks. It reads the company’s own invoices, job records and payment history, read-only, sorts the past-due balance by cause — invoice lag, dispute, missing paperwork, wrong address, no follow-up, or a true collection account — and prices each one in a written report the company keeps. Lumina is not a collection agency and sells no billing service, so the report has no reason to send accounts anywhere, and it gives no legal advice. The next step is a free 20-minute call, where we say whether the Review fits, including when it does not.