Skip Navigation

In House Collections Versus Using a 3rd Party Collections Agency

In House Collections Versus Using a 3rd Party Collections Agency

In the intricate world of debt management, businesses often find themselves at a crossroads when it comes to collecting unpaid debts. Deciding whether to engage third-party debt collection agencies or handle collections in-house is pivotal, packed with implications for financial health and customer relationships. That's why we at MicroBilt want to help businesses make the right choice in their pursuit of debt recovery and financial stability.

The current state of the economy is placing tremendous pressure on consumers and the financial institutions that work closely with them. The total American household debt equals $17.1 trillion as of the second quarter of 2023, and the average household debt is $101,915 as of the end of 2022. Approximately 3% of all Americans defaulted on a loan in April of this year, equal to a little over 10,000,000 borrowers! These statistics are daunting, so how can you make the right decision?

Keep reading and better understand the pros and cons of these two debt collection strategies, why some combination of the two might make sense, and which tools can be used to help collect the money your business is owed. 

The Importance of Debt Collection

Debt collection is an integral part of managing any business's finances. However, the timely collection of outstanding debts makes the most difference in maintaining a steady cash flow and achieving profitability. An analysis of the debt collection industry by ACA International found that you can expect to only get back 20-30% of the loans after a 90-day period.  

Moreover, effective debt collection safeguards against losses that can accumulate due to unpaid invoices, preventing potential disruptions to business operations. Many banks, such as Bank of America, have already provisioned $931 million for credit losses in the first quarter of 2023 in preparation for the expected increase in borrowers who might default on their loans. This is much higher than the $30 million a year prior. 

The optics of debt collection are also crucial for cementing the credibility of a business to creditors and stakeholders. Without efficient debt collection, a business's financial health can deteriorate, hindering its ability to thrive and compete effectively in the market. So, with all this in mind, let's go through the advantages and disadvantages of third-party and in-house debt collection. 

Pros and Cons of Third-Party Debt Collection

Hiring a third-party debt collector can provide many benefits to lenders looking for a professional service that knows the ins and outs of debt collection. But it's not always right to default straight to outsourcing. Let's go over the pros and cons:


  • Expertise and Experience: Debt collection agencies specialize in recovering unpaid debts. They have the knowledge, experience, and resources to navigate the intricacies of debt recovery effectively.
  • Time and Resource Savings: Outsourcing debt collection allows companies to focus on core business activities, increasing efficiency and productivity.
  • Compliance and Legal Knowledge: Debt collection agencies know debt collection laws and regulations, minimizing legal risks and ensuring compliance with the Fair Debt Collection Practices Act (FDCPA).


  • Costs and Fees: Debt collection agencies typically charge fees or commissions, which can eat into the debt recovered. These fees vary widely and may include upfront costs, contingency fees, or a percentage of the total amount collected.
  • Loss of Control: When businesses use a third-party collection agency, they may lose some control over the customer relationship and the debt collection process, resulting in a less personalized approach that may impact the customer experience.
  • Reputation Risk: Poorly managed or overly aggressive debt collection tactics can harm a business's reputation. If the third-party agency uses unethical or aggressive methods, it may tarnish the business's image and result in customer complaints or even legal issues.

Please note that as of 2018, the debt collection industry generated a total revenue of $11.5 billion, a decline from $13.5 billion in 2013. Meanwhile, consumer debt continued to grow and reached almost $14 trillion in 2019. The collection rate of the industry is around 20%. Additionally, there are approximately 258,000 job positions for bill and account collectors.

Consumer debt is on the rise, but the collections industry is expected to decline by 8% between 2018 and 2028 due to automation. This decline in revenue and jobs could have a considerable impact on the industry and the economy as a whole.

Pros and Cons of In-House Debt Collection

In-house or first-party debt collection gives the financial institution control over how they handle their customers and, in the process, can be successful. But it may come at the cost of money and time. Below are some of the pros and cons you might want to consider before settling on one path or the other:


  • Maintaining Customer Relationships: Unlike outsourcing, in-house debt collection allows businesses to control the collection process directly. This often enables a more personalized and empathetic approach when dealing with customers who owe money. 
  • Cost Savings: Once a system has been built out, businesses can avoid the fees associated with third-party collection agencies, which can typically lead to higher net recoveries and cost savings over time.
  • Enhanced Control and Flexibility: First-party collection provides greater control over collection strategies and timelines. Businesses can tailor their approaches to suit their industry, customer base, and brand reputation.


  • Compliance: Debt collection is heavily regulated by federal and state laws, such as the Fair Debt Collection Practices Act (FDCPA) in the United States. Without proper legal counsel, in-house debt collection violations can result in fines of up to one thousand dollars and substantial damage to your credibility.
  • Resource and Time-Intensive: In-house debt collection can be time-consuming and resource-intensive. It diverts valuable manpower and resources away from core business functions, potentially affecting overall productivity and efficiency.
  • Limited Collection Tools: First-party collectors may have limited resources, making it challenging to locate debtors, negotiate settlements, or take legal action.

It's important to keep in mind that many large organizations have in-house departments that are significantly larger than third-party debt-collecting agencies. As organizations grow larger, the need for outsourcing diminishes, and the value of providing flexible options to customers becomes a necessity. Smaller organizations still find value in using first-person debt collection, but there may be a cut-off in terms of the time commitment they are willing to invest, and may default to third-party options in the hope of saving money. Some tools, though, can shorten the process and give your organization an advantage. 

MicroBilt Can Help

MicroBilt has worked with organizations for the past 40 years to assist them in recovering their debt and maintaining their financial stability during difficult times. Using state-of-the-art tools such as our advanced skip tracing technology or our advanced automation technology, Microtrac, to help keep collection efficient, we have the products needed to keep you one step ahead of the game. Learn more about our collections and recovery suite of products and contact one of our helpful representatives today.