Debt collection software or debt collection agency? How to choose

For many businesses across many industries, overdue accounts are inevitable.

But what’s the best way to manage them? Do you establish your own in-house collections operation, or do you partner with a collection agency? Let’s explore some of the benefits and potential drawbacks of both.

Servicing overdue accounts in-house

When you service overdue accounts in-house, you retain full control over the customer experience and, depending on your tech setup and integrations, may be able to process payments and reconcile accounts faster, but you will be limited to the capabilities of your software solution. However, full control over the customer experience also means full responsibility for the customer experience. You have to run the operation, build a skilled team, build in compliance, select the right software solutions, and navigate software integrations, all of which can add up in terms of operating expenses.


  • Full control of the customer experience. When you manage collections in-house, you maintain control over the customer relationship. Every touchpoint, from emails written in your brand voice, to payment options available through their usual account portal, to the simple fact that communications are coming from a business they already do business with, can impact recovery rates and customer retention.
  • Integration with ARM software. The debt collection software suite you select may be able to integrate with your accounts receivable management (ARM) software, or may even be an extension of it, which can help you automate some elements of your recovery operations. You may even be able to reconcile some overdue accounts without your customer’s direct involvement.
  • Fast reconciliation. Reconcile overdue balances fast. This is particularly valuable for accounts that may need services restored quickly, such as utilities. Rapid response ties into customer experience. It’s also worth noting that debt collection agencies are also capable of fast reconciliation, but it’s a capability that varies from agency to agency.

Potential drawbacks

  • Operating expenses. Running any kind of operation internally is going to incur operating expenses. Software licensing, integration, and upkeep. Costs related to the hardware or cloud instances required to host and run your debt collection software. Employee and contractor time. Even with automation, expenses can add up fast and make in-housing your recovery operations a losing proposition, particularly as overdue accounts age.
  • Software integration. Your debt collection software will most likely need to be integrated with your ARM software and other internal systems. It’s possible for this to go smoothly, but it’s also possible to end up with a system that’s held together with the tech equivalent of duct tape and chewing gum, adding to operational complexity and operating expenses, as well as extending the time to recover from and address any problems that may arise.
  • Risk. Servicing overdue accounts in-house gives you control over the collections experience, but it also means you assume full responsibility for that experience. Not just from a brand and reputation perspective, but also in terms of security and compliance. With governments increasingly regulating collections – such as the recent introduction of Regulation F in the United States – debt collectors have to tread carefully or risk penalties.
  • Capability does not equal competency. Debt collection software is ultimately just a tool. You still need to dedicate resources to get the most out of it. Who will handle customer questions and concerns? Who will ensure compliance, who will write your email templates? Who will monitor their performance and optimise your outreach over time? And what are they not doing while they’re performing these necessary tasks?


When you partner with a debt collection agency, you give up that direct control of operations and of the customer experience, but you also relieve yourself of the operational burden and the accompanying expenses. Placing overdue accounts with debt collectors also provides a degree of insulation (though not immunity) from certain types of risk, such as compliance.


  • Little to no impact on operating expenses. Since a debt collection agency runs its own recovery operations, there is little to no additional operational expense required on your part.
  • Limited software integration required. Instead of having to configure, integrate, and maintain your own debt collection software, your debt collection agency will handle their own. Expect to work with their implementation team to make the necessary connections. This can be a traditional CSV file and SFTP transfer, or increasingly, connection via API.
  • Contingency fee model. Most debt collection agencies operate on a contingency fee model, also known as a “fee for success” model. In essence, they only collect a fee based on the amount they are able to recover for your business.
  • Insulation from risk. Insulation does not equal immunity. As a creditor, you do have a responsibility to provide oversight and conduct due diligence, including ensuring your debt collection agency partners can perform their services in compliance with applicable laws and regulations. But ultimately, it is the debt collection agency’s responsibility to ensure security and compliance, not yours.

Potential drawbacks

  • Forfeiting control of the customer experience. Most debt collection agencies operate as a third party, meaning they reach out to customers on your behalf, rather than reaching out as you.
  • Selecting the wrong debt collection agency. There are thousands of debt collection agencies to choose from, and choosing the wrong one can cause a variety of headaches.
  • Delays in reconciliation. Some debt collection agencies have fully integrated collection platforms that can reconcile recoveries in a highly automated, near real-time fashion. But many don’t, and more traditional agencies may rely on a more manual reconciliation process, which can lead to delays.
  • Degraded customer experience. While practices are changing and more and more debt collection agencies are adopting a customer-first approach, many still use incessant phone calls and intimidating communications as they attempt to recover past due payments, and this can put customer relationships at risk.

Considering intelligent debt collection

Another factor to consider between debt collection software and debt collection agencies is the type of agency. Traditional agencies pursue traditional debt collection methods like phone calls and mailed past due notices. Debt collection, like opinion polling and other industries that rely on these “old school” methods, has faced obstacles as people increasingly avoid phone calls. According to the Pew Research Center, only 19% of US adults answer phone calls from unknown numbers.

On top of shifting consumer behaviour, new regulations such as Reg F in the United States are putting increased restrictions on how, when, and how often customers can be contacted about their overdue accounts.

All of this is creating an environment in which debt collection is shifting and, increasingly, going digital.

Fundamentally, intelligent debt collection creates a personalised collections journey for every single customer, using an omnichannel approach. This empowers customers to resolve their debt at their convenience, maximising recoveries and customer satisfaction.

Debt collection software or debt collection agencies - which is right for you?

Ultimately, the choice between servicing overdue accounts in-house or partnering with a debt collection agency depends on a number of factors, and there’s no one right answer. Both approaches have their benefits and their potential drawbacks.

Many businesses actually pursue both, handling early stage accounts in-house and then placing them with collection agencies after a certain period of time has elapsed, often after the account has been past due for 90 or 180 days.

At the same time, several forward-thinking businesses are finding a lot of success bringing debt collection agencies in far earlier in the lifecycle of an overdue account.

As you weigh your options, you may want to calculate where it makes sense to move from in-house to third party operations. Typically, this tipping point arrives when your operating expenses exceed the contingency fee paid to agencies. To explore how to calculate your tipping point in more detail, be sure to check out this guide here.

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