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Major Pitfalls of "Net Collections" Compensation

Provided by:  Jennifer Kirschenbaum, Esq.

         April 17, 2018

 

Question:

Hi Jennifer, 

I'm set to move from a set salary to Net Collections.  Can you give me some guidance on what I should be talking to my employer about regarding the change?

Thanks,
Dr. D

Answer:

Absolutely.  What does "Net" mean in "Net Collections"?  "Net" means deductions from gross - so what are those deductions?  What is being netted out?  You should have an actual definition of what is actually being subtracted from total collections before you get your percentage.  And, even more important, and one of the biggest pitfalls in accepting a Net Collections arrangement (in my view) is understanding the employer's rate of collections.  I have not met a client collecting 100 cents on the dollar.  On the contrary, most are collecting 35 cents on the billed dollar.  So, before we get overly excited switching to Net Collections - we have two basic questions to start our inquiry (and then likely a host of follow ups...), which are: (1) how are we defining Net (whats being taken out)?; and (2) what is the average rate of collection (before we Net out)?    If you aren't being given access or answers to the two basic questions set forth above, i recommend you think twice before allowing your compensation to change.  

If you need me to look at language, reach out
   

 


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