No win No fee Debt Collection – Too Good To Be True?

As the old saying goes “if something is too good to be true, then it probably is”.

You may think you have nothing to lose by using a cheap back street No Win No Fee Debt Collection company, but by using one you might end up dealing with even more issues than just a debt!

Whilst British Business remains in the grip of tight economic conditions, over the past couple of years, there has been a rise in the demand for Debt Collection Companies advertising themselves as operating a ‘No win No fee Debt Collection’ policy when this clearly is not the case. As this spurious practice continues to grow, so does the misinformation surrounding this ‘no win – no fee’ culture within the Debt Collection Industry.

The position of some is that as they seemingly pay nothing initially, the Debt Collection firm in question will work harder to recover the money and that there is nothing to be lost, only gained. The simple truth of the matter is very different and should be taken very seriously.

What Is No ‘Win No Fee Debt Collection’?

The No Win No Fee Debt Collection term is simply being used by some as a marketing slogan in the Collection Industry to mask over a hidden ‘drip pricing’ structure and quite often companies that advertise themselves as ‘no win – no fee’, require a membership and/or joining fee which straight away, is an immediate contradiction of their key selling point which should give a clear indication of what is to follow.

Often these companies will charge exorbitant commission rates, quite often as high as 50% (even higher in some instances) and will have hidden costs contained within their services. It is also common that these type of companies are fronts for firms of fee-earning solicitors who will simply wish to matter to proceed to litigation so they can begin to apply their hourly fees (Average £250 per hour) as well as any other costs incurred therein.

There have been instances where a debt has been collected and the actual amount that was owing in recovery fees was nearly 3 times what the actual debt was in the first place

Other ‘No win – no fee’ companies have ties with Debt Management and Insolvency firms looking for free, direct and easy lead generation as once details of a debtor are supplied, they will bombard them with details of ‘how to clear their debts with one easy payment’ which involves the usual bankruptcy, liquidation or IVA/CVA option.

This a far more financially lucrative option than actually attempting to collect the debt and will severely prejudice any of your attempts to recover what is owing to you.

With most No Win No Fee Debt Collection companies, it is simply a numbers game. It is a simple economic fact that a company cannot operate without cash flow so how can a Debt Collection firm work for ‘free’. How can they deliver a depth of service they may promise for ‘free’ without some sort of guarantee.

Some Debt Collection agencies actually have it written in their Terms & conditions that if they fail to collect then you will be liable for their costs.

It is also worth noting that in the event they can’t or don’t collect what is owed to you because they view it as to challenging, complex or difficult. Your debt then becomes secondary debt. You may even write it off at this point or have to pay additional commissions by going elsewhere to get the job done properly.

No company can operate without cash flow so the question is, what will they actually do to recover your money? They cannot offer you any form of service by means of updating you etc, and they will try to charge you where possible.

More often than not, it is simply a numbers game. If you have a case with no merit then maybe this is a valid option for you but once again, you may be liable for an invoice in the event that they cannot collect it.

5 Facts to Consider with No Win No Fee Debt Collection

Fact 1

Many Debt Collection Companies that advertise as ‘No Win – No fee’ will still require a joining fee or membership fee as they like to call it. There are also drip pricing fees to be paid for disbursements such as tracing, mediation etc They may also charge you an abortive fee if they can’t collect!

Fact 2

How aggressive will they be? You have your Business reputation to consider and you will also be liable for any unlawful or criminal actions they may undertake. Demanding money with menaces is a serious criminal offence.

Fact 3

Some ‘No win – No fee’ firms allegedly have ties to ‘Debt Management & Insolvency’ companies. This will seriously prejudice the potential of successfully recovering your debt. They portray to be debt collection agencies in order to get free leads for their services.

Fact 4

The commission rates charged by ‘No win – No fee’ firms will be far higher than other means usually 30% or more for smaller debts. Then any additional fees they charge will be stuck on top.

Fact 5

What is their reputation? Are they adequately licensed and authorised to act? You will penultimately be responsible for their actions, lawful or unlawful.

So, as the old saying goes “if something is too good to be true then it probably is”

You may think you have nothing to lose by trying No Win No Fee Debt Collection, but it could cost you a lot more than you thought!

What are the Alternatives to a No Win No Fee Debt Collection Agency?

Whilst ‘No win No fee Debt Collection’ might sound like a great idea at first, there are many pitfalls to what it offers. With this in mind, what are the alternative debt recovery options?

Many debt collection agencies, such as Federal Management or Frontline Collections, offer a fully professional debt collection service. Federal Management, for example, is regulated by the Financial Conduct Authority (or FCA), meaning that clients can benefit from a fully transparent service with no hidden costs (such as those found with a No win No fee Debt Collection service).

One of Federal Management’s best client’s commented:

“Not usually one to review but I had to recommend Federal Management for recovering debts for our business. No hidden costs, great ethics and just an all-around fantastic service.”

For more information on Federal Management’s Professional Debt Collection services,  speak to one of our friendly debt collection experts now.