Cost-Effective Debt Collection: UK Strategies That Maximise Recovery
Cost-Effective Debt Collection: What You Pay vs What You Recover
The Wrong Way to Think About Cost
Most businesses evaluate debt collection on cost. How much does the agency charge? What's the contingency percentage? What are the legal fees? These questions matter — but they're the wrong starting point.
The right starting point: what's the cost of NOT collecting? A £50,000 receivable at 90 days past due has a recovery probability of approximately 74%. At 180 days: 58%. At 12 months: 25-30%. Every month of inaction costs roughly 3-4% of the receivable's value. A collection agency charging 15-20% contingency on a successful recovery costs less than two months of inaction.
Cost-effective debt collection isn't about finding the cheapest agency. It's about maximising net recovery — the amount that ends up in your bank account after all fees and costs.
UK Pricing Models
Contingency (no win, no fee). The agency takes a percentage of recovered amounts — typically 10-25% for B2B claims depending on claim age, size, and complexity. No recovery, no fee. This is the standard model for amicable collection and aligns the agency's incentives with yours.
Fixed fee per case. Some agencies charge a flat rate per claim — typically £50-£250 for initial demand letters and amicable efforts. Lower cost if recovery is successful, but you pay regardless of outcome. Best for high-volume, low-value claims where the contingency percentage would be disproportionate.
Legal costs (separate). If a claim escalates to litigation, legal fees are additional. County Court filing fees range from £35 (claims up to £300) to £10,000+ (claims above £200,000). Solicitor fees for commercial litigation: £2,000-£15,000 depending on complexity. These should be disclosed and approved before any filing.
Maximising Net Recovery
Timing is the biggest cost lever. A claim placed at 60 days with a 20% contingency fee recovers more net cash than a claim placed at 180 days with a 10% fee. The math: £50,000 claim at 60 days, 85% recovery probability, 20% fee = £34,000 net. Same claim at 180 days, 58% recovery, 10% fee = £26,100 net. Earlier placement with higher fees produces better net outcomes.
The statutory demand path. For undisputed UK debts above £750, a statutory demand costs approximately £200-£500 to prepare and serve. If it produces payment (which it does in roughly 50-60% of cases), the cost-to-recovery ratio is exceptional. This should be the first escalation tool for qualifying claims.
Late payment compensation. The Late Payment of Commercial Debts (Interest) Act 1998 entitles UK creditors to interest at 8% + BoE base rate, plus fixed compensation (£40-£100) and reasonable recovery costs. These amounts are recoverable from the debtor — reducing your net collection cost.
The Decision Framework
For claims under £5,000: fixed-fee collection or Small Claims Court (filing fee: £35-£455). For claims £5,000-£50,000: contingency-based collection with statutory demand escalation. For claims above £50,000: contingency collection followed by High Court litigation if necessary, with detailed cost-benefit analysis at each escalation point.
The most cost-effective debt collection strategy isn't the cheapest. It's the one that recovers the most money, fastest, with costs proportionate to the claim.
