Your business depends on collecting the money it is owed. Unfortunately, those in debt are not in a position to readily pay you. What can you do if this happens to your business? Surely, ignoring the debt you are owed does not make for good business or a high number reflecting your gross revenue.
It is frustrating and time consuming for businesses to devote resources towards collecting their debts. For this reason, businesses look to outside collection services to perform the task for them.
Yes, the collection agencies do charge a fee on what they collect, but a company must consider if it is worth outsourcing to get some of their money rather than using their own in-house energies. Consider the following when making your decision.
How can collection agencies help my business?
Collection agencies make it their business to contact debtors, alert them of their debt, and urge them to pay. Depending on the time frame of delinquency, collection agencies will send letters, make phone calls, or threaten legal action.
Collection agencies have a reputation for harassing debtors to pay. This is not a reality or very likely considering they must comply with the federal Fair Debt Collection Practices Act.
Collection agencies focus on claiming your debt, so your company does not have to live with a loss and can focus on other areas of your business.
When can I use a collection agency?
Most businesses wait a time period of over sixty to ninety days until turning delinquent accounts over to a collection service, but this can be done as soon as thirty days expire. Once you transfer the account over to your collection agency, all of the communication to the debtor will be made through them.
Every instance with a debtor will be different. What time is the right time to turn them over? Consider it when they make grievances about paying, deny owing you money, do not make an effort to contact you, change their contact information without informing your company, etc.
All businesses want to make money. Revenue raised is used to pay employees, build the business, and pay existing debts. What if those owing you, are slow to pay? Their lack of efficiency creates chaos for your business.
To further exacerbate the situation, you must devote more time and resources to acquiring money that is owed to you. Don’t let that happen to you; your company’s time and resources are valuable and needed to make more money for your business.
If your business is owed money, then look into employing the services of a collection service. Collection agencies are experienced in getting money for others. Rather than spending the time on what could be a futile effort, let a trained collection company work for you.
Consider the following advantages in leveraging a collection agency.
A debt collection service is on your side
As aforementioned, competition is fierce enough without being distracted. A business competing for consumers cannot afford the time to chase after their debt. On the other hand, a serious business cannot afford to take a loss on previous goods/services provided.
Collection agencies are the answer to the problem. They will work with you in developing timelines and strategies to collect debt. Just as your company concentrates on your core business matters, collection services concentrate on collecting debt for other entities.
Why using a collection service is advantageous
Obviously, if debt becomes a problem with another entity, they are being too lax about the subject. In short, they do not view being in debt to you as seriously as you do. That is why it is good to bring in a collection agency. They are viewed as an outside source becoming involved. The word, ‘collections’ instills fear in those in debt.
If you attempted to get your money on your own, or with a less experienced collection agency, it may take some time. Why should you wait for your money? In addition, collection businesses have experience. They are trained to work with individuals in debt. They know exactly what tactics to use to get your money, and when desired, maintain your relationship with those in debt.
Choose a collection agency that is right for you
Not all collection companies are created equally. Look for a service provider that has experience working with a business your size and with accounts of your nature. It is a huge advantage to have good synergy with any outsourced business service.
Be sure to shop around and receive quotes from several collection agencies before settling on one. Talk to a representative from their company and exchange information. Get to know their company’s tactics and values, as well as divulging information about your business.
Think about what you save by outsourcing a collection agency
Using the services of a collection agency will serve doubly. Not only do they have the expertise to get money from those in debt, but they in are making you money by doing the work for you. Rather than spending your time away from your business addressing debt issues, they are allowing you to focus on the reason why you are in business – to make money.
Accounts Retrievable - Why Hire A Debt Collection Agency
Any company, large or small, that extends credit usually has some amount of receivables owed from slow paying or non-paying customers. The fact that not all customers pay, or pay on time, is reflected in balance sheets under the description bad debt or other receivables. Aging receivables can be managed internally or by outsourcing to commercial collection agencies. Here are five benefits businesses realize by opting to outsource to collection agencies:
Collect Sooner Rather than Not at All
The accounts receivables staff is often tasked with collecting aging receivables. These people usually have other responsibilities and may naturally put off doing collection work simply because it is not anyones favorite task. Since the longer a debt remains unpaid, the less likely it is ever to be collected, delay in collecting can be costly. Commercial collection agencies understand this principal and are motivated by their business models to collect sooner rather than later, recovering money that otherwise might be gone forever.
Maximize Revenue
In some companies, salespeople do not receive their full commissions until all monies are received from clients, thus forcing salespeople to spend at least some of their time working in an accounting function. Not only can this lead to confusion and deterioration of relations with clients, but the unfortunate outcome of this practice is that every minute spent collecting is a minute spent not generating future revenue.
Keep the Door Open for Additional Business from Existing Customers
Retaining existing customers is generally much less expensive than acquiring new ones. By hiring collection agencies, companies distance themselves from the role of bad cop when existing clients are reluctant to pay. The first notice from a collection agency may be enough to spur the customer into action while allowing the relationship between the parties to remain cordial or neutral.
Work with, not against, Prevailing Business Practices
One way companies manage cash flow is by holding payables as long as possible. Every company has a philosophy, if not an actual written policy, about when to pay their bills. Sometimes the philosophy dictates that bills are not paid until creditors demand payment in terms stronger than a monthly invoice. A letter or a call from a collection agency is often the trigger for a check to be released.
Save Money by Paying Only for Results
When receivables are significant, there may be a dedicated collections person who is paid a salary regardless of how much bad debt is recovered. Many commercial collection agencies are paid only when they collect, so companies using collection agencies can often save the expense of salaried employees.
Since banks review balance sheets when deciding to make loans or extend lines of credit, it is important to have as small an amount of old receivables as possible, while at the same time extending credit to new and existing customers to fuel growth. By implementing a policy of collecting early and regularly through neutral third party collection agencies, companies keep their customer relationships and their books healthy while improving their credit worthiness.
The term collection agency is usually applied to third-party agencies, called such because they were not a party to the original contract. The creditor assigns accounts directly to such an agency on a contingency-fee basis, which usually initially costs nothing to the creditor or merchant, except for the cost of communications. This however is dependent on the individual service level agreement (SLA) that exists between the creditor and the collection agency. The agency takes a percentage of debts successfully collected; sometimes known in the industry as the “Pot Fee” or potential fee upon successful collection. This does not necessarily have to be upon collection of the full balance; very often this fee must be paid by the creditor if they cancel collection efforts before the debt is collected. The collection agency makes money only if money is collected from the debtor (often known as a “No Collection – No Fee” basis). Depending on the type of debt, the age of the account and how many attempts have already been made to collect on it, the fee could range from 10% to 50% (though more typically the fee is 25% to 40%).
Some debt purchasers who purchase sizable portfolios will utilize a Master Servicer to assist in managing their portfolios (often ranging in thousands of files) across multiple collection agencies. Given the time-sensitive nature of these assets, many in the Accounts Receivable Management (ARM) industry believe there is a competitive advantage in utilizing this technique as it gives the debt purchaser more control and flexibility to maximize collections. Master Servicing fees may range from 4% to 6% of gross collections in addition to collection agency fees.
Some agencies offer a flat fee “pre-collection” or “soft collection” service. The service sends a series of increasingly urgent letters, usually ten days apart, instructing debtors to pay the amount owed directly to the creditor or risk a collection action and negative credit report. Depending on the terms of the SLA, these accounts may revert to “hard collection” status at the agency’s regular rates if the debtor does not respond.
In many countries there is legislation to limit harassment and practices deemed unfair, for example limiting the hours during which the agency may telephone the debtor, prohibiting communication of the debt to a third party, prohibiting false, deceptive or misleading representations, and prohibiting threats, as distinct from notice of planned and not illegal steps. . In the United States, consumer third-party agencies are subject to the federal Fair Debt Collection Practices Act of 1977 (FDCPA), is administered by the Federal Trade Commission or FTC.
In the United Kingdom third-party collection agencies that pursue debts regulated by the Consumer Credit Act must hold a Consumer Credit Licence and work within the framework of the 2003 fair debt collection guidance; licences are issued and regulated by the Office of Fair Trading.
Debt Collection Agency - Accounts Retrievable Systems
Giving money to a collection agency can feel like handing your lunch money over to a schoolyard bully. But it’s different when you legitimately owe what the collection agency is asking you to pay. Paying a debt collection is often painful because the product or service associated with the debt has long been consumed. If you’re debating on whether you should pay a collection you owe, here are 5 benefits of getting rid of those collections for good.
1. Stop collection calls for good.
As long as you have outstanding debt collections, you’ll probably be getting calls from debt collectors. A cease and desist letter may end calls from one particular debt collector. However, since collection accounts often change hands, you’ll keep being contacted about the debt until it’s taken care of.
2. Get approved for credit cards and loans.
Many banks won’t approve your credit card or loan application as long as you have outstanding collection accounts on your credit report. This means no mortgage, no car loan, and no American Express. Even employers won’t hire you for certain jobs if you have unpaid debts on your credit report. Paying the collection won’t remove it from your credit report, but a $0 balance is far better than one that’s still delinquent.
3. Improve your credit score.
As collections get older, they affect your credit score less. Of course, collection accounts will disappear from your credit report after seven years. As long as the accounts are still within the credit reporting time limit, a paid collection is better for your credit score than an unpaid one.
4. Eliminate the risk of being sued.
People assume that debt collectors won’t waste their time or money suing over a small collection. This assumption isn’t always true. As long as you have an outstanding collection that’s still within the statute of limitations, you run the risk of being sued for what you owe. A lawsuit could lead to a court judgment, a public record that will also tarnish your credit report for seven years. And if you still don’t pay up, the collector may get court permission to garnish your wages.
5. You’re closer to being debt-free.
Paying off a debt collection means there’s one less company you owe money to. You may feel like you’ve lost the battle if you pay a debt collection after resisting for months or years. In the long run, paying off a debt collection is better for your credit and your finances. Taking care of debt collections is a good thing, when you can afford to do it.
When renting property. landlords often have to contend with non-paying renters. These renters often move voluntarily, or are evicted, leaving their landlord wondering how to seek compensation for unpaid rent. If you are a landlord that is searching for a way to collect past due rent a collection agency might be your answer.
How to Collect Past Due Rent Using a Collection Agency
Attempt to contact your former tenant to make payment arrangements. Sending certified letters to the tenant’s new address (if one can be found) will help you to prove that every effort was made on your part to resolve the situation. File these letters along with any documents related to the rental property in the event that they are needed by the collection agency.
Find a collection agency that specializes in rental properties. There are a variety of collection agencies that deal solely with rental property and landlord/tenant disputes. When searching for a collection agency attempt to find a company that is local. Many landlords are more comfortable dealing with collection agencies that are easily accessible.
Choose the collection agency that has the most reasonable contingency/flat rate fees available. Also, be sure to find out what methods the collection agency will use to collect the past due rent and how long it usually takes them to collect the rent. Some collection agencies will seek court judgments while others will offer generous settlements.
Provide the collection agency with copies of all documents related to the lease. Collection agencies often have trouble collecting bad debts because of a lack of proof that the debt exists and has not already been paid. Giving the collection agency a copy of the signed lease and any other contracts that the tenant may have signed will help prove the validity of the debt.
It may also be necessary to provide proof of any letters sent demanding payment and all documents relating to the eviction of the tenants. If the agency requests this information it is important to provide it as soon as possible. Most collection agencies will request that documents first be faxed and then mailed.
Keep track of the progress of the collection agency. Some collection agencies will send weekly or monthly reports regarding the progress of their collection efforts. If you are not receive status updates call your collection agency at least once a month to find out how things are progressing.
This is important to avoid getting in a situation where the statute for collecting on a debt has run out and will sometimes encourage your collection agency to try more aggressive methods.
Accounts Retrievable System - Debt Collection Agency
Congress passed the Fair Debt Collection Practices Act in 1978, faced with an overwhelming number of complaints about debt collection. The act regulates third party debt collection agencies, not original creditors. Individual states may have additional consumer protection laws.
Contact Times
The law says third party debt collectors may contact you only between 8 a.m. and 9 p.m. Collectors also violate the law if they contact you during times you have told them are inconvenient. These hours could include when you are picking up the children, settling in for supper or getting ready for work.
Verbal Abuse
The act prohibits debt collectors from using any form of verbal abuse. They may not threaten you in any way. This includes threats to publicly broadcast your debt, supply false information on your credit report, tell your employer about your debt or take legal action they have no right to take. Profanity is prohibited, as well as any type of verbal insult.
Legal Action
A debt collection agency cannot file legal action in a place that is far from your home. Any legal action taken must be filed in your state, and you are not obligated to travel out of state to appear in court. An exception may be made depending on the status of the account and the delinquent dollar amount, but only if the account was opened in one state and you later moved to another state.
Third Party Contact
The law says agencies cannot contact any third party about your debt without consent. This includes employers, relatives and neighbors. In cases of missing contact information, the agency may be entitled to one phone call in an effort to find you. If this happens, the agency is not allowed to disclose that it is collecting a debt.
Identification
The agency must identify itself as a debt collector before discussing the matter at hand. Each communication, written or verbal, must include what is sometimes called a mini Miranda warning. This warning states that the communication is from a debt collector and it is attempting to collect a debt. Any information obtained will be used for that purpose only. If agencies do not communicate these two sentences, they are in direct violation of the Fair Debt Collection Practices Act.
Debt Verification
Upon your request, the debt collection agency must provide you with information about the debt it is trying to collect. You can request proof of the debt. Agencies also must provide by request the original creditor’s name, address and phone number, along with the original debt amount. They are given 30 days to respond to such a request and must cease communications until you receive the information.
Collection agencies find their workloads to be cyclical. When the economy is booming, collection agencies have fewer clients in need of their services. However, when the economy takes a turn for the worse, collection agencies suddenly find themselves inundated with new business and clients.
Locating Clients
Collection agencies solicit work from businesses with large outstanding unpaid balances. After exhausting all attempts to collect on the outstanding debts, frustrated business owners turn their collection problems over to the third party debt collection agencies. The collection agency takes on the responsibility of collecting the outstanding debts. Collection agencies employ tried and proven practices which give them a higher success rate at securing past due and unpaid balances than their clients.
Earning Money by Collecting Debts
Debt collection agencies make money on a contingency basis. Their income is directly related to the amount of outstanding debt cases from which they actually collect money. There are several ways in which a debt collection agency can earn money. Some agencies purchase the outstanding debt from their client. In other words, they pay the client a small percentage of what the outstanding debt is worth. The client, who previously faced a total write off as bad debt, agrees to the arrangement because getting something is better than nothing. The debt collection agency, the new owner of the outstanding debt, goes about collecting the outstanding balances.
In calculating how much to pay a client for the bad debt, the collection agency takes into consideration its success rate in collecting outstanding debt versus the amount the agency is willing to pay for it. The difference between what the agency pays for the debt and the amount it collects for the debt is the collection agency’s profit. Other agencies negotiate a commission percentage. The client retains ownership of the bad debt, but the collection agency receives a percentage of each outstanding balance collected.
Varying Degrees of Collection
The debt collection agency has several degrees of debt collection. It starts with a friendly reminder and then increase the intensity and frequency of the collection efforts. Collection agencies are mindful, however, not to violate the law. They are Federally governed by the Fair Credit Reporting Act and locally governed by the laws existing in the state, city and locality of the area in which they operate.
Personal debt collection is the process of collecting money that is owed to a private individual, typically by another private individual. Collection of personal debt may be harder for an individual than a company, simply because most do not have the experience and resources needed to properly execute a collection strategy. Typically, the debt is unsecured, which only works to make collection even more difficult because the individual does not have a personal stake in paying it back. Often, personal debt collection involves use of a lawyer or going to small claims court.
Often, the first step in the process of personal debt collection begins with an initial contact to the person owing the debt. The best way to do this is by letter. The sender should keep a copy of the letter, and send the original by certified mail, with a return receipt requested. This allows the sender to document the attempt, which will provide credibility to the claim in court. Of course, it is also advisable to have a signed agreement regarding the debt before the money is ever provided; without this, it may not always be possible to collect.
If the attempt to first settle the debt is unsuccessful, subsequent attempts may involve more letters, possibly with an attorney. If the collector decides to use an attorney, he or she should get a quote on the price before making the hire. Each individual needs to determine whether hiring an attorney is worth it. Typically, a good rule of thumb to use is to only hire an attorney if the cost of the attorney will be less than half of what the debt is.
When these attempts still does no work, the personal debt collection process will typically involve going to court, or at least filing a claim. The threat of going to court may prompt the individual to settle the debt. If not, a clerk of court can provide individuals with forms to file a small claim, or at least direct a person to an appropriate resource. Often, a plaintiff does not need to use the services of an attorney for small claims unless there is some unusual complication.
The most important thing to do when facing a personal debt collection is to document as much as possible. This includes having paper trails for the existence of the debt, as well as each attempt to collect it. While verbal agreements are typically legally enforceable, it may be harder to prove the existence of that agreement unless both sides stipulate that it was made. Having it written down removes any doubt.
Accounts Retrievable Systems Debt Collection Agency
The debt collection process typically begins with the original creditor. Customers who miss a payment may receive a letter in the mail or a phone call reminding them that payment is due. Missed payments resolved at this early stage typically have only minor consequences, such as a small fee or a minor incident on the debtor’s credit report. As time passes or the debtor misses more payments, however, the debt collection process becomes more serious; the creditor may begin calling more often or sending more urgent correspondence through the mail. About six months after the first missed payment, the creditor typically charges off the account.
A charged-off account means that the original creditor is giving up and selling the debt to an outside collection agency. This action typically has a severe impact on the debtor’s credit report. At this point, the collection agency is required by law to notify the debtor that it has taken over the account.
After receiving notification from the collection agency, the debtor typically has 30 days to challenge the authenticity of the debt. If the debtor argues that the debt is not valid, the collection agency is required to verify the account with the original creditor. The agency cannot take further action while the account is in dispute.
Once the 30 days have passed or the account has been validated with the original creditor, the agency begins the debt collection process. Agencies usually contact the debtor by mail or by phone and demand payment. Some collection agencies may be willing to work with the debtor by offering payment plans or settlement amounts, but they have the right to request as much as they want as long as it does not exceed the total amount owed. Collectors are not obligated to accept a settlement offer or payment plan from the debtor.
While debt collectors may employ many negotiation tactics in order to collect money, the Fair Debt Collection Practices Act prohibits certain behaviors. For example, collectors cannot call before 8 am or after 9 pm. They are not allowed to harass debtors, use obscene language, or threaten them with harm. Collectors may not make false claims about the debt or make threats involving legal action that they do not plan to actually take.
If the debtor fails to pay the amount owed or make settlement arrangements, the agency may either sell the account to another company or to a collection attorney. An attorney may take legal action against the debtor, including a judgment or lawsuit. Settlement at this point in the debt collection process often means an appearance in court and additional fines and fees. It also has a severely negative impact on the debtor’s credit report.
