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What is no collection-no fee and how does it work with debt collection?

When you look at different debt collection options one phrase that comes up a lot is no collection-no fee also known as no win-no fee. But what does that actually mean and how does it relate to debt recovery?

When you look at different debt collection options one phrase that comes up a lot is no collection-no fee also known as no win-no fee. But what does that actually mean and how does it relate to debt recovery?

Put simply, no collection-no fee means that if the collection agency is not able to recover some or all of the client’s debt then the client will not need to pay a fee to the collection agency. If the agency is able to collect payment towards the debt then the client will need to pay a fee for that collection.

The most common type of no collection-no fee arrangement is percentage based commission. This is where an agency will agree that their fee will be a percentage of what they are able to recover. For UK debts this would typically be around the 10% mark although it can vary depending on the size and age of the debt and how involved the collection process is likely to be.

As an example, let’s assume a client places a debt of £1,000 with a collection agency, having agreed a 10% commission on a no collection-no fee basis. If the agency manages to collect this debt in full from the debtor they will then bill their client for £100 (10% of the debt). If the agency only manages to collect half of the debt (£500) then their commission will be £50 (10% of what they managed to collect). If the agency is unsuccessful then there will be no charge to their client.

Are there other types of no-win no-fee arrangement?

Although commission based charging is the most common type of no collection-no fee arrangement for debt collection, there are other options. A collection agency may agree a fixed fee with their client (for example “If we collect your debt we will charge a fixed fee of £100”) or an agency may agree to take any costs and interest that are due as their fee, ensuring the client always gets the original debt amount.

This is not to be confused with a Conditional Fee Arrangement or Damages Based Agreement, which are common types of no win-no fee arrangements in the legal world, often used in personal injury cases. Although on the face of it these are similar (as law firms will often agree to take a percentage of any winnings as their fee) they are a strictly regulated process that require all parties to sign a formal agreement, and often the rates that can be charged are either set or capped by the courts.

Are there any downsides to no collection-no fee arrangements?

In many circumstances a no collection-no fee arrangement is ideal for a client seeking to recover money from your customer without the need to put money up front, and they reduce the risk of throwing good money after bad in the event the collection process is unsuccessful. However there are a few things to bear in mind:

  • No collection-no fee arrangements usually only cover the pre-action stage of the collections cycle; if your customer does not pay and you need to go down the route of issuing a Claim in court, this will usually not be covered and you will need to switch to fixed cost pricing
  • On larger debts the commission can mean a large sum is owed to the collections agency in the event of a successful collection. Some agencies mitigate this by having a sliding scale of reduced percentages for larger debt values, but not all
  • Some costs may not be included in the fixed fee pricing – for example if your customer needs to be traced then often this cost will be charged separately
  • Most no collection-no fee arrangements will have a close-out fee meaning that once a debt has been placed with the collections agency you will still need to pay commission even if your customer pays you directly, or if the client wishes to close the case for any reason other than the debt being paid or the collections agency agreeing that the debt is uncollectable.

What should I expect to pay?

Commission rates do vary but generally speaking a commission rate of about 10% is considered fairly standard for a UK debt which is less than a year or so old and where there are no known complicating factors. For overseas debts the rates can vary considerably – here at Guildways we charge 22% for European debts and between 28-35% for all other countries.

I need help collecting a debt

Have you got a debt you’d like collected on a no collection-no fee basis? Feel free to contact us here and we’ll be in touch to explain how the process works and get the ball rolling.

25 Jan 2021