The Commission Illusion: Why Paying More Doesn’t Always Mean Collecting More

When it comes to third-party collections, many creditors assume that commission-based compensation is the ultimate motivator. After all, if agencies only earn when they collect, their interests must be perfectly aligned with yours—right?

Not always.

In fact, that assumption can lead to one of the most overlooked inefficiencies in vendor management. Paying a higher commission doesn’t necessarily mean you’ll see greater effort or better results. Sometimes, it produces the opposite effect—where an agency learns to work just hard enough to hit a satisfactory liquidation rate without pushing for true potential.

The truth is, commission alone doesn’t buy effort. It buys output—but only the amount of output the agency finds most profitable for the time and resources invested. And that distinction can make or break your recovery performance.

Over the years, I’ve seen a variety of efforts to understand how to pay the right amount – from underpaying and getting less than optimal service and results, to overpaying, and still getting less than optimal service and results – if a different way. I’ve also seen creditors change their rates mid-stream – either higher or lower – but without much success for a variety of reasons.

The Myth of Motivation

It’s easy to believe that money drives performance. But in collections, motivation isn’t just about rate—it’s about structure.

Most agencies operate with a practical mindset: What effort yields the best profit margin? If a certain level of recovery can be achieved efficiently, investing extra time on harder-to-collect accounts often isn’t worth the diminishing return—especially when there are multiple portfolios competing for attention.

That means a 20% commission doesn’t guarantee effort commensurate with a 20% fee. It could be more likely to guarantee that the agency will pursue the most profitable slice of your business first and potentially let the rest age quietly in the background.

Consider this: if an agency can achieve a 12% liquidation rate with moderate effort, and pushing beyond that to 14% requires double the time, technology, or labor, the rational business move may be to stop at “good enough.” The agency’s profit margin stays intact, but your recoveries plateau.

When Incentives Backfire

Commission-only arrangements can unintentionally shape behavior in ways that don’t always serve the creditor’s best interest. For example:

Easy wins get priority. Agencies may focus on accounts with larger balances, recent activity, or cooperative debtors—because those produce quick returns.

Harder accounts are sidelined. Older or more complex placements may be set aside when the perceived return doesn’t justify the effort.

Speed trumps strategy. Collectors might push settlements that close accounts quickly rather than explore payment arrangements that yield higher long-term recoveries.

Volume overshadows value. When multiple clients are in play, the one offering the best mix of commission and ease-of-collection often gets the most attention.

This isn’t necessarily a sign of poor performance—it’s a predictable response to a structure that rewards efficiency more than persistence.

The Low Commission Trap

The flip side is just as risky. Some creditors push hard for lower commissions in the name of cost savings. It looks good on paper—until the results roll in.

The old saying “you get what you pay for” applies here more than ever. When the rate is driven too low, agencies often adjust by cutting corners: fewer calls, less experienced staff, or limited skip tracing and technology investment. The effort simply doesn’t pencil out at the offered rate.

Sometimes, low commission offers are used as door openers—a way for agencies to win the business and get in the door. But once placements begin, the complaints surface: “The rate isn’t profitable,” or “We can’t give it the attention it deserves at this fee.”

In those cases, the creditor may find themselves with an agency that’s technically working the accounts, but only in the most minimal way. Performance slides, communication weakens, and recoveries drop below expectations. What seemed like a cost savings ends up costing much more in lost results and the time it takes to find a new vendor.

Low commission doesn’t create efficiency—it limits it. A well-structured, fair rate creates the space for agencies to invest in the effort, systems, and skilled collectors that drive consistent, compliant results.

Reclaiming Control as the Creditor

If your goal is consistent, optimized recovery—not just a low fee—you have to look beyond the commission rate and focus on the structure around it.

Here are some ways to shift control back to the creditor’s side of the table:

Define success clearly.
Don’t rely solely on liquidation percentages. Include measures of effort, consistency, and compliance in your scorecard. Track things like contact rates, complaints, and settlement quality to get a full picture of performance. Of course, compliance and security is a given in this example.
Monitor activity, not just outcomes.
Results matter, but so does the process behind them. Review call monitoring, account treatment patterns, and collector adherence to strategy. Regular audits—both remote and onsite—help confirm that your expectations are being met.
Compare like-for-like.
When possible, rotate placements between agencies handling similar account types. True performance becomes clearer when the same portfolio mix is distributed across multiple partners.
Reinforce effort through oversight.
Agencies perform better when they know their work is being evaluated beyond numbers. A structured oversight program demonstrates that persistence, professionalism, and compliance are valued just as much as liquidation.
Reward the right behavior.
Consider hybrid or tiered incentive structures that encourage agencies to maintain consistent effort. For example, increasing commission slightly on recoveries beyond a certain threshold or rewarding compliance-based milestones can motivate the right kind of performance. Don’t be afraid to spend money where appropriate.

The Right Pricing Formula

Finding the right pricing isn’t about who charges the lowest rate or who claims the highest liquidation. It’s about balance—aligning what you pay with the effort, transparency, and accountability you expect.

The lowest commission rate may save money on paper but result in missed opportunities and lower overall recovery. On the other hand, paying a higher rate doesn’t guarantee stronger performance unless there’s structure behind it. The key is ensuring that the fee structure supports effort, not shortcuts.

A well-designed pricing model:

Provides fair compensation for consistent, compliant performance.

Encourages collaboration and open communication between agency and creditor.

Includes review points for ongoing calibration—especially as account mix or volumes shift.

The best agencies recognize that long-term relationships are built on trust and measurable results, not short-term fee advantages. When your oversight reinforces that partnership, both sides win.

Aligning Incentives and Successful Outcomes

At its core, the commission model is meant to align incentives—but it only works when effort, strategy, and accountability align too.

A strong vendor oversight program bridges that gap. It ensures agencies aren’t just chasing liquidation numbers and fee dollars but are managing your accounts in ways that reflect your standards, values, and recovery goals.

Commission should motivate, not define, performance.

Oversight, structure, and partnership complete the picture.

Author: Judy Hammond

judy.hammond@resourcemanagement.com

Judy Hammond is founder and President of Resource Management Services, Inc. The corporation was founded in 1986 and specializes in auditing and consulting, serving the collection and recovery industry. As President of Resource Management Services, Inc., she has more than 35 years of experience with an emphasis on operational reviews for compliance and operational eﬀectiveness of collection operations, both for creditors’ internal collection and recovery operations as well as collection agencies and attorneys. She has worked with top banks and financial institutions, utilities, credit unions and telcoms, (and their vendors) and has conducted many Best Practices projects. She is author of various industry publications: “Comprehensive Agency/Attorney Usage Study,” “Comprehensive Agency/ Attorney Usage Study II” and “Collect More From Collection Agencies”. Her work with creditors who were looking to sell debt for the first time, and subsequent Buyer/Seller research was the foundation for the second corporation, The Debt Marketplace, Inc. She worked with Dennis Hammond as co-founders of the Debt Buyers’ Association, (now RMAi), building the foundations for industry standards, as well as the original code of ethics. She developed and produced two industry conferences, Collection and Recovery Solutions and Debt Connection Symposium & Expo, from their inception in 2002 and 2006, respectively, to 2022. Prior to starting her own company, she worked with two large collection agencies.

Resource Management Services, Inc. provides consulting on collection and vendor management topics.

With expertise and experience in collections, oversight and compliance, we understand the challenges faced by creditors in managing collections and recoveries while adhering to ever-evolving regulatory standards.

That’s why our team of seasoned experts is dedicated to providing tailor solutions that address your unique collection and compliance requirements.

From comprehensive consulting services to specialized training programs and meticulous oversight of third-party vendors, we offer a comprehensive suite of services designed to empower your team and optimize your compliance strategies.

We also offer third-party call monitoring oversight programs for creditors!

Contact our blog authors or Write to us at info@resourcemanagement.com for more information.

www.resourcemanagement.com

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