Should you use a commercial collection agency? What agencies charge, when to send an invoice to collections, and what contractors should try first.
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Every contractor eventually has the invoice that will not move. You sent it, you followed up, you called, and now it is 90 days old and the customer has gone quiet. Someone in the office says, "Should we just send it to collections?" A commercial collection agency is a real option, and sometimes it is the right one. But it costs a lot more than most owners expect, and it is the wrong tool for the majority of late invoices.
I ran three restoration companies over 14 years. I sent accounts to agencies, and most of what ended up "in collections" never needed to get there. This guide covers what a collection agency actually does, how much a collection agency charges (with named sources, not guesses), when it makes sense to send an invoice to collections, and what to try first so you only pay that fee on the accounts that truly need it.
KEY TAKEAWAYS
A commercial collection agency is a third party that collects business-to-business debts on your behalf. In construction, that usually means money a general contractor, property manager, developer or business owner owes you. Some agencies also take consumer accounts (homeowners), but those fall under different federal rules, which we will get to.
Once you "place" an account, a typical agency will:
What an agency does not do is fix the reason the invoice went unpaid. If the customer is waiting on a missing lien waiver, a change order signature or a carrier's check, a collector calling them is not going to help much. That is the single biggest mistake I see: contractors send invoices to collections that were really paperwork problems.
Most commercial agencies work on contingency. You pay nothing up front, and the agency keeps a percentage of whatever it recovers. If it collects nothing, you usually owe nothing (read the contract, because some charge for suits, court costs or withdrawals). The percentage depends mainly on three things: how big the balance is, how old it is, and how many accounts you send.
Here is what two named sources show. Use them as reference points, not quotes. Every agency prices differently.
| Balance collected | Published contingency rate |
|---|---|
| Under $1,000 | Up to 50% |
| $1,000 to $5,000 | 25% |
| $5,000 to $50,000 | 20% |
| $50,000 to $500,000 | 15% |
| Over $500,000 | 10% |
Source: The Kaplan Group, "Commercial Collection Agency Rates" (published rate schedule on kaplancollectionagency.com, checked November 2026). Tiers and boundaries vary between versions of the page; confirm the current schedule with the agency.
The second reference is BuyerZone, which surveys business buyers about what they actually paid. Respondents in its collection agency rate survey described 25% of the amount recovered as a normal price, and one reported being offered 20% as a first-time customer. BuyerZone also notes that the age of the debt and the amount owed both push fees up, and that debt over a year old is harder to collect, so agencies often charge more for it.
Put those together and a fair rule of thumb for a contractor is this: on a typical $5,000 to $50,000 commercial balance, expect to give up roughly a fifth to a quarter of what is recovered. On small, old, or out-of-state accounts, expect a third to a half. If the account goes to suit, there may be court costs and suit fees on top.
AGENCY CONTRACT CHECKLIST
The contingency fee is the visible cost. There are three others owners tend to forget.
The customer relationship. Once an agency calls a GC or a property manager, you are probably not bidding their next job. Sometimes that is fine. If they owe you $8,000 and stiffed you, you do not want their next job. But a lot of accounts that land in collections belong to decent customers who got lost in a slow AP department. Sending those to an agency burns a relationship that was worth far more than the fee.
Time. Agencies are not fast, and anything that goes to suit takes months. An agency rarely solves this month's payroll.
Lost leverage. If you place an account before you serve your preliminary notice or file a lien, you can blow your lien deadline while the agency is still sending letters. On construction work, your strongest leverage is usually the lien, not the collector. More on that below.
I am not anti-agency. A good commercial collection agency for contractors is worth every point on the right account. Here is when I would send an invoice to collections without hesitating:
| 1 | The customer has gone dark after a full sequence. You sent friendly, firm and final notices by email, text and phone over six weeks or more, and nobody responds. |
| 2 | The dispute is clearly in bad faith. The work was signed off, there are photos and a completion certificate, and the "complaint" showed up only when the bill came due. |
| 3 | The debtor moved or closed. Skip tracing a business that changed names or shut a location is what agencies are good at. |
| 4 | The debtor is in another state. Agencies with attorney networks can sue where the debtor is, which you usually cannot do cheaply yourself. |
| 5 | The lien window has closed or never existed. If you have no lien rights left and the balance is too big for small claims, an agency and its attorneys may be your best remaining route. |
When I would not: the invoice is under 60 days old, the customer is still responding, or the hold-up is a missing document. Those are process problems, and you can fix them for a lot less than 25%.
There is no law that says "send to collections at 90 days." But in practice, the older an invoice gets, the less of it you collect and the more an agency charges for it. That is why the decision should happen on a schedule, not when someone finally gets frustrated. Your aging report is the tool that tells you which accounts are crossing each line.
| Days past due | What should be happening |
|---|---|
| 1 to 14 | Friendly reminders by email and text with a payment link. Confirm they received the invoice. |
| 15 to 30 | Firm second notice, a phone call, and a check for missing paperwork (lien waivers, signed change orders, pay app backup). |
| 31 to 60 | Owner or office manager call. Offer a payment plan. Check your state's lien and notice deadlines now, not later. |
| 61 to 90 | Final written demand with a firm date and the specific next step (lien, small claims or agency). |
| 90+ | Escalate: file the lien if you still can, file in small claims if the amount fits, or place the account with an agency. |
The agency shows up last, after the cheap steps. Run the first four rows every time and the last row gets short.
Bring one overdue invoice.
We'll show you the follow-up it would get before it ever reaches an agency, and what your customer would see.
Most accounts I placed with agencies had the same story: one invoice email, one reminder a month later, then silence from our side. Here is what works first.
One reminder is not a collections process. Send a friendly notice right after the due date, a firm one two weeks later, a call, and a final notice with a date. Mix channels, because people ignore email but read texts, and they ignore texts but pick up voicemail. Our friendly, firm and final reminder templates and past due invoice letters give you the wording.
Ask what is missing. On commercial work, the hold-up is often a conditional lien waiver, a certificate of insurance, a signed change order or a pay app line the GC questioned. On residential work, it is often that paying is a hassle. Put a payment link in every message so a homeowner can pay by card or bank transfer from their phone. Make sure the invoice itself is clear and backed by solid job documentation.
A call from the owner lands differently than a fourth email from the office. So does a call to the customer's controller instead of the project manager who hired you. Escalating internally costs nothing and keeps the relationship.
On construction work, a mechanics lien or a notice of intent to lien is often more persuasive than any collector, because it puts the property owner's title at stake. But lien rights depend on deadlines and notices that vary by state, and they can expire while you are still waiting. Check your state's statute the moment an account passes 30 days, and talk to a construction attorney. Our guide on how to collect unpaid construction invoices walks through the order of steps.
For balances under your state's limit, small claims court is cheap and you keep 100% of what you win (collecting the judgment is a separate job). Limits vary a lot, and some states set a lower cap for businesses:
| State | Small claims limit | Source |
|---|---|---|
| California | $12,500 for individuals; $6,250 for businesses and other entities | California Courts Self-Help Guide (courts.ca.gov); Cal. Code Civ. Proc. 116.220 and 116.221 |
| Texas | $20,000 in justice court | Tex. Gov't Code 27.031 |
| Florida | $8,000, exclusive of costs, interest and attorney fees | Florida Small Claims Rules, Rule 7.010 |
Limits change. Confirm the current figure on your state court's website before filing.
Many contractor receivables are not commercial at all. The homeowner's deductible or remodel balance is a consumer debt, and that matters when you send it to collections.
The federal Fair Debt Collection Practices Act (15 U.S.C. 1692 and following) applies to third-party debt collectors collecting debts incurred for personal, family or household purposes. It does not cover business-to-business debts. The CFPB's Regulation F (12 C.F.R. Part 1006), which implements the FDCPA, adds specific limits, including a presumption that a collector calls too often if it places more than seven calls within seven consecutive days about a particular debt (12 C.F.R. 1006.14). An agency working your homeowner accounts has to follow those rules, so expect them to be more careful, and slower, than they are with a GC.
The federal FDCPA generally does not apply to you collecting your own invoices. Some states go further. California's Rosenthal Fair Debt Collection Practices Act (Cal. Civ. Code 1788 and following) applies many of the same standards to creditors collecting their own consumer debts. Other states have their own debt collection and agency licensing laws, so check your state's statute.
This is not legal advice. Debt collection, lien and small claims rules vary by state and change over time. Talk to a construction attorney in your state before you file a lien, sue, or place consumer accounts with an agency.
For restoration contractors, there is one more wrinkle: insurance. If the unpaid balance is really a carrier delay, an agency calling the homeowner will not move the carrier. Work the claim with the adjuster and send the homeowner only what they owe, such as the deductible. Our restoration debt collections guide covers how to split that work.
Here is the honest comparison. These are not really competitors. Automation handles the first 90 days so fewer accounts reach an agency. The agency handles the few that are left.
| Commercial collection agency | Automated follow-up | |
|---|---|---|
| Best for | Customers who have stopped responding, bad-faith disputes, skip tracing, out-of-state suits | Every open invoice from day one: forgotten bills, slow AP, homeowners who need a nudge |
| Cost | Percentage of each recovery, often 15% to 50% | Flat monthly software cost; you keep the full invoice |
| Customer relationship | Usually ends it | Keeps it, because messages come from your company |
| Speed | Weeks to months | Starts the day an invoice is due |
| Legal escalation | Yes, through attorney networks | No. It builds the record you need if you escalate |
If you are comparing tools, our roundup of debt collection software lists the options. Below is how we approach it.
AR Workflow is built for the part of collections that happens before an agency. It connects to QuickBooks, picks up every open invoice, and puts each one on a follow-up schedule. It sends automated payment reminders by email and text, plus ringless voicemail, all from a dedicated number, with a payment link homeowners can use from their phone. It stops when the customer pays, pauses on a promise to pay, and logs every touch against the invoice.
The aging dashboard shows which accounts are crossing 30, 60 and 90 days, so the decision to file a lien, go to small claims or place an account with an agency gets made on time instead of by accident. And if you do end up placing an account, you hand the agency a complete, dated history of every reminder, which helps them and protects you. On insurance jobs, AR Workflow treats adjusters differently from homeowners and never puts a payment link in a message to an adjuster or carrier.
Most commercial collection agencies charge a contingency fee, a percentage of what they recover. The Kaplan Group's published schedule runs from 25% on $1,000 to $5,000 balances down to 10% on balances over $500,000, with claims under $1,000 up to 50%. Buyers surveyed by BuyerZone described 25% as typical. Older and smaller debts cost more.
Usually after 90 days, and only once you have run a full follow-up sequence, removed any paperwork excuses, issued a final written demand with a date, and checked whether a lien or small claims filing is a better option. Earlier placement makes sense if the customer has disappeared or the debt is clearly disputed in bad faith.
A commercial collection agency collects business-to-business debts, such as a GC or property manager that owes a subcontractor. Consumer agencies collect personal and household debts, such as a homeowner's balance, and must follow the federal FDCPA and the CFPB's Regulation F. Many agencies do both, but they handle them differently.
Placing an account with an agency does not stop your lien deadlines from running. If you have not filed in time, you can lose the right while the agency is still working the account. Check your state's statute and talk to a construction attorney before you place a construction account.
Often not. On a $700 invoice, a 50% fee leaves you $350, and many agencies set minimum claim sizes. Small balances are usually better handled with consistent automated reminders, a payment link and, if needed, small claims court.
Related reading
Before you pay an agency 25%, try this.
Bring one overdue invoice to a demo and see the follow-up AR Workflow would run on it, and what your customer would see.
Photos: Unsplash. Fee figures are third-party published rates and survey responses, shown for reference only. This article is general information, not legal advice.
Sam owned and ran three restoration companies for more than 14 years and collected over $100 million in receivables. He built AR Workflow in 2020 to give contractors the collections system he wished he'd had.
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