Charities using third parties to manage donations

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
Swimmer
Posts: 762
Joined: Tue Dec 29, 2015 3:24 pm

Charities using third parties to manage donations

Post by Swimmer »

My favorite charity began using a company this year that collects donations online and charges the charity an 8% fee. Am I really behind the times? I think this is a lot! I used to send a check directly to the charity and assume very close to 100% goes to the charity.

Is this standard for the industry? I’m finding myself reluctant to donate this time.
Last edited by Swimmer on Tue Dec 07, 2021 5:11 am, edited 1 time in total.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Charities using “collection companies “

Post by willthrill81 »

Are you saying that the charity is using a third-party vendor for processing payments, or is this 'collection company' actively seeking out donations on behalf of the charity? If it's the former, 8% sounds ridiculously steep. If it's the latter, 8% sounds ridiculously cheap.
The Sensible Steward
Joey Jo Jo Jr
Posts: 553
Joined: Mon Jun 21, 2021 11:38 pm

Re: Charities using “collection companies “

Post by Joey Jo Jo Jr »

I’m not an expert on this, but it doesn’t strike me as an unusually high outsourcing fee. Presumably, the charity made a business decision and determined they could get more this way than direct solicitation, and that 8% was competitive with other vendors. Charities sometimes get less than half of “walks to cure such and such” and similar events, which even that can make sense at the firm level if it’s money the charity would not have otherwise gotten. However, you might validly question whether the aggregate effect of such professionalized solicitation is beneficial for society.

All that said, if you continue paying directly the fee may not apply. You could ask the charity.
Topic Author
Swimmer
Posts: 762
Joined: Tue Dec 29, 2015 3:24 pm

Re: Charities using “collection companies “

Post by Swimmer »

willthrill81 wrote: Mon Dec 06, 2021 2:04 pm Are you saying that the charity is using a third-party vendor for processing payments, or is this 'collection company' actively seeking out donations on behalf of the charity? If it's the former, 8% sounds ridiculously steep. If it's the latter, 8% sounds ridiculously cheap.

My terminology was very poor. You nailed it with “third-party vendor for processing payments.” Thanks. I’m going to contact the charity and see if I can donate directly. However, if they take my check and input it through the third party, my end run fails.
User avatar
ResearchMed
Posts: 16763
Joined: Fri Dec 26, 2008 10:25 pm

Re: Charities using “collection companies “

Post by ResearchMed »

Swimmer wrote: Mon Dec 06, 2021 1:29 pm My favorite charity began using a company this year that collects donations online and charges the charity an 8% fee. Am I really behind the times? I think this is a lot! I used to send a check directly to the charity and assume very close to 100% goes to the charity.

Is this standard for the industry? I’m finding myself reluctant to donate this time.

Did the caller say they were a "collection company"?
That's the wording you used in your Subject Header.

That would suggest that someone thinks you are already somehow obligated to make a payment (for a contribution!?) and they are trying to... "collect it", as with other "debts".
That would seem odd for a voluntary pledge previously given.

Regardless of the above wording, charities can end up with a relatively large percentage of their money going to "overhead", meaning money that never is used for the actual charitable function. This type of payment would presumably be part of that.
If the charity is using volunteers to solicit contributions, that's usually at no cost, unless there is something such as use of extra office or phone lines needed.
(I've done this in the past, but the "phone bank" was in a large room in the non-profit headquarters. Even then, I suspect they may have paid to have all the equipment set up for that day/weekend/week/etc., unless those were also contributions-in-kind.)
And then there are the staff salaries and rent/etc., for facilities, possibly vehicles...

All of that disappears as "overhead" somewhere along the line.

RM
This signature is a placebo. You are in the control group.
Weathering
Posts: 791
Joined: Sun Oct 15, 2017 4:20 pm

Re: Charities using “collection companies “

Post by Weathering »

Many k-12 schools and their sports teams (and other school activities like theatre) have started using SnapRaise.com
They charge 15% of all collections.
Their pitch line is “all it costs you is 20 email addresses”
My son’s middle school musical theatre raised $10k on Snapraise this year. I donated by check directly to the teacher because I wanted 100% to go to the program. But even then, the teacher said I hope “Johnny” still puts in his email addresses because it’s all about spreading the message.
exodusNH
Posts: 10249
Joined: Wed Jan 06, 2021 7:21 pm

Re: Charities using “collection companies “

Post by exodusNH »

Swimmer wrote: Mon Dec 06, 2021 1:29 pm My favorite charity began using a company this year that collects donations online and charges the charity an 8% fee. Am I really behind the times? I think this is a lot! I used to send a check directly to the charity and assume very close to 100% goes to the charity.

Is this standard for the industry? I’m finding myself reluctant to donate this time.
Smaller organizations sometimes get the software for no charge in exchange for some portion of the proceeds. If that 8% includes the normal credit card processing fee, that reduces the overhead by 2-2.5%. Not having to pay $1000s up front and more in ongoing hosting fees can be quite a savings.

Especially if they're providing reports and other backend functionality that isn't visible to donators.
brian91480
Posts: 681
Joined: Fri Jan 29, 2021 6:44 pm
Location: Minnesota

Re: Charities using “collection companies “

Post by brian91480 »

ResearchMed wrote: Mon Dec 06, 2021 2:23 pm Charities can end up with a relatively large percentage of their money going to "overhead", meaning money that never is used for the actual charitable function.
RM
Overhead is a dirty word in society, but not all "overhead" is created equal.

Unless a nonprofit is 100% volunteers, which is rare... you need to hire and pay employees. The HR person is considered overhead. That's OK. The accountant who pays the employees is considered overhead too. That's OK.

"Training classes" in Hawaii = example of bad overhead (unless the nonprofit is based in Hawaii 😁)
User avatar
ResearchMed
Posts: 16763
Joined: Fri Dec 26, 2008 10:25 pm

Re: Charities using “collection companies “

Post by ResearchMed »

brian91480 wrote: Mon Dec 06, 2021 10:33 pm
ResearchMed wrote: Mon Dec 06, 2021 2:23 pm Charities can end up with a relatively large percentage of their money going to "overhead", meaning money that never is used for the actual charitable function.
RM
Overhead is a dirty word in society, but not all "overhead" is created equal.

Unless a nonprofit is 100% volunteers, which is rare... you need to hire and pay employees. The HR person is considered overhead. That's OK. The accountant who pays the employees is considered overhead too. That's OK.

"Training classes" in Hawaii = example of bad overhead (unless the nonprofit is based in Hawaii 😁)
Sure, but the percentage of overhead can vary.
I don't remember the name, but there is a site that gives various charities' overhead rates.

The earlier discussion included concerns about the amount of the "cost of the collections".

RM
This signature is a placebo. You are in the control group.
Topic Author
Swimmer
Posts: 762
Joined: Tue Dec 29, 2015 3:24 pm

Re: Charities using “collection companies “

Post by Swimmer »

ResearchMed wrote: Mon Dec 06, 2021 11:58 pm
brian91480 wrote: Mon Dec 06, 2021 10:33 pm
ResearchMed wrote: Mon Dec 06, 2021 2:23 pm Charities can end up with a relatively large percentage of their money going to "overhead", meaning money that never is used for the actual charitable function.
RM
Overhead is a dirty word in society, but not all "overhead" is created equal.

Unless a nonprofit is 100% volunteers, which is rare... you need to hire and pay employees. The HR person is considered overhead. That's OK. The accountant who pays the employees is considered overhead too. That's OK.

"Training classes" in Hawaii = example of bad overhead (unless the nonprofit is based in Hawaii 😁)
Sure, but the percentage of overhead can vary.
I don't remember the name, but there is a site that gives various charities' overhead rates.

The earlier discussion included concerns about the amount of the "cost of the collections".

RM

Thank you. I’ve edited my title for accuracy.
Mr. Rumples
Posts: 2963
Joined: Sun Aug 25, 2019 7:16 am

Re: Charities using third parties to manage donations

Post by Mr. Rumples »

If a charity uses more than 25% for overhead (for me, that's high), I look elsewhere. This includes third parties to manage donations as part of the 25%. There is debate on whether overhead and administrative costs are important. For myself, as a donor, they are. They are an indication of whether the donations are being used efficiently.

This might help:

https://www.charitynavigator.org/index. ... eMetricTwo

(This thread is timely for me; I am considering pulling my endowed scholarship from the organization I have given it to since there are some things in the financials I am concerned about.)

Some charities (not to be confused with a non-profit, such as a museum) have lower overhead than other charities, for example a food bank handles less money than a charity funneling financial donations to cancer research; yet I hold to the 25%. I also always check the state's licensing of the charity.
"History is the memory of time, the life of the dead and the happiness of the living." Captain John Smith 1580-1631
Old Guy
Posts: 660
Joined: Mon Mar 19, 2012 7:20 am
Location: On the beach in SC. Hilton Head Island.

Re: Charities using third parties to manage donations

Post by Old Guy »

Many of the charities we contribute to in our area receive their funds through the Community Foundation of the Low Country, https://cf-lowcountry.org/about/financials. In fact, it maybe the only way you can donate to them. This group also receives gifts for its own programs, invests them, and donates to the charities. I think community foundations exist in many places in the country.
Post Reply