According to federal law a debt collector has certain rights to pursue repayment from you. However, even if you owe money, you too, have legal rights about how you are contacted and pursued. The Fair Debt Collection Practices Act (FDCPA) applies to debt collectors, lawyers who regularly collect debts, and collection agencies. It may not apply to a collector who is a direct employee of an actual creditor that you owe money to. But most unpaid debts do end up in collections with outside collectors.
Does the FDCPA Protect Sole Proprietorships?
Yes! The same rights afforded to individuals under the FDCPA also protect sole proprietors. The FDCPA does not release you from your debt obligations, but it does control how debt collectors can pursue women business owners for their business’ debt.
Most women small business owners today own sole proprietorships. If you are a woman sole proprietor, or in many cases, involved in a partnership, you may be personally responsible for any debts that your business has incurred.
Laws that apply to debt collection from individuals also apply to collection procedures from business owners when the business’ debt is their own personal responsibility.
Debt collectors can be difficult to deal with, and in some cases, even seem cold-hearted. But, as with any other business transaction, it is important to keep things in perspective. Debt collectors are simply doing their own job, which is, to collect money that you owe.
Debt Collection Agencies Overview: Debt collection agencies are hired by banks and other lending institutions to recoup payments on loans that have gone in arrears. They also are hired by various other providers of expensive goods and services (notably hospitals) to collect on large bills that have gone unpaid.
Debt Collection Careers: The core employees of debt collection agencies are collection agents, usually phone representatives who call debtors with demands for payment. In some cases, these phone representatives may be given limited authority to negotiate terms with debtors. In all cases, the position requires, or can help develop, sales and marketing skills.
Debt collection agencies also employ back office staffs involved in areas such as:
• Relationship management with creditors
• Receiving and tracking payments
• Setting parameters for negotiating with debtors
Billing: Debt collection agencies typically are paid on a commission basis, retaining a portion of the funds that they collect on behalf of the creditor. Individual collection agents themselves may be compensated either on a commission basis, or on a salary plus bonus formula, with the bonus tied to collections.
Debt Collection Agencies Outlook: According to a study by the research firm IbisWorld released in November, 2008, the aggregate revenues of debt collection agencies will be approximately $14.3 billion in 2008, nearly double the 1997 figure and growing to a projected $17.8 billion in 2014.
An improving economy should result in fewer new cases of borrowers falling into arrears on their loans, but opportunities for debt collection agencies may increase, nonetheless, since debts formerly considered uncollectable may then become recoverable, as the borrowers’ financial situations improve.
Hate collecting your money? Join the crowd. Recent OPEN Small Business Network Polls from American Express shows accounts receivables is the top cash flow concern of small business owners. Learn the secrets of collection letters and other mastery tips to ensure your customers pay.
You started your business to make a difference, to delight a customer, to express your vision, not to become the bank of choice for your customers. Use the following collection letter and debt collection mastery tips:
Take a Positive Stance: Don’t take it personal if your customers aren’t paying the bills. Explore why the bill is late. It could be your client simply forgot. Provide a gentle reminder immediately following the due date.
Increase Directness Gradually: One of the secrets of collection letter mastery is to gradually increase the assertiveness of the letter over time. Your first letter is positive and helpful, the third collection letter may show concern for their situation, and so it builds.
Use Multiple Channels: In today’s electronic age, handling your entire invoicing and collection letter sending by email is simple and quick. It also can ensure your correspondence is buried in an overstuff inbox and low priority. Use additional means of sending out your collection letter correspondence including faxes, phone calls, regular mail, courier, and telegrams.
Empower the Right People: As a small business owner the temptation is great to have the sales people handle accounts receivables. It’s better to assign one person to the task and provide proper support, training, and incentive.
Call the Heavy Hitters: After numerous calls and collection letter correspondence you’ll reach a point where the account is long overdue. Bring in a collection agency to handle these delinquent clients. Spending too much time and resources can be draining on your operations.
Don’t Ignore FDCPA: There are laws and regulations as to how collection agencies can go about collecting debt. Debt collectors cannot lie to, mislead, or harass your customers. Make sure the collection agency you select abides by the Fair Debt Collections & Practices Act (FDCPA).
Run a Credit Report: Reduce your overdue accounts by running a credit check on your potential business client before the deal is done. Expect to spend at least $30 on a Dun & Bradstreet report. D & B uses self reported data but adds credibility by including: banking data from company suppliers, bankruptcy filings, media sources, suits, liens, and judgments.
Always Check References: Any small business planning to sign a “big deal” would be advised to run trade and bank reference checks. Simply inquiring with your potential client’s or partner’s bank can reveal important banking relationship information and how they have maintained their accounts.
Change Industries: To improve your collection abilities, diversify your business into industries that have a tendency to pay bills on time and who have lower failure rates.
Handling the debt collection process is a responsibility of successful business ownership. Too many small businesses place aging receivables and collections as a low priority. It’s important to monitor your cash flow and aging receivables on a monthly basis or more. It’s ok to write off bad debt, but in the end, it’s your business savvy to handle the matter that will impact your growth.
A Debt Collection Agency is a business that collects debts for a fee or percentage of the total amount owed on behalf of the original creditor.
While some debt collection agencies offer flat fee services, most operate on a contingency fee basis. The fee the debt collection agency charges is based on how old the debts are and how much business a creditor has to offer. The less amount of time the debt has been outstanding and the more outstanding accounts receivable a business has, the lower the percentage the debt collection agency will charge for collections.
The standard rate in the collections industry for business-to-business accounts is 30 percent. The rate for collecting consumer accounts is higher. The typical collection agency fee is in the 20 to 40% range.
This may seem like a lot, but debt collection agencies have experience with and knowledge about debt collection that individual business owners don’t have and hiring one can be well worth it if the amount of outstanding accounts receivable warrants it.
If you do hire a debt collection agency to collect your business’s debts, note that in Canada debt collection agencies are regulated by the province in which they operate. That doesn’t mean that you have to hire a local collections agency; just that you need to be sure that the collections agency you hire is fully licensed and bonded in your province.
From a consumer’s point of view, the fact that collection agencies are provincially regulated means that what a debt collection agency is allowed to do when pursuing collections also varies from province to province, although there are commonalities.
The Federal Trade Commission is the primary federal regulator of collection agencies, although the Bureau of Consumer Financial Protection—created in 2010 and housed within the Federal Reserve—will also have regulatory power over collection agencies. Many States and a few cities require debt collection agencies be licensed and/or bonded. In addition, many States have laws regulating debt collection, to which debt collection agencies must adhere (see Fair debt collection).
The Fair Debt Collection Practices Act is the primary federal law governing debt collection practices. The FDCPA allows aggrieved consumers to file private lawsuits against a collection agency that violates the Act. Alternatively, the Federal Trade Commission or the state attorney general may take action against a noncompliant debt collection agency, including issuing fines, ordering damages, restricting its operations or even closing it down (see, e.g. CAMCO).
The FDCPA specifies that if a state law is more restrictive than the federal law, the state law will supersede the federal portion of the act. Thus, the more restrictive state laws will apply to any agency that is located in that state or makes calls to debtors inside such a state.
In addition to state and federal laws, a majority of U.S. debt collection agencies belong to trade group ACA International and agree to abide by the association’s code of ethics as a condition of membership. ACA’s standards of conduct require its members to treat consumers with dignity and respect, and to appoint an officer with sufficient authority to handle consumer complaints. Consumers may also resolve disputes brought against a debt collection agency who is a member of ACA through ACA’s consumer complaint resolution program.
Accumulating debt can be an extremely disturbing experience for all businesses. The procedure of making contact with individuals and companies that have unpaid can take precious time away from additional significant company issues and the concentration needed for managing a company. In such a case, engaging a debt collection agency is an ideal solution to having the entire affair handled by a source, outside your company.
One of the main benefits in appointing a debt collection agency is that you are taking the right to put your confidence on a company that specializes in making certain that you obtain the money payable to you. The people who work in these organizations are familiarized in making calls to all sorts of customers.
One more benefit is that you pay for outcomes. Debt collection agencies depend on the success of getting your customers to shell out what they are obligated to pay you, so as to obtain their individual earnings.
As a business holder, probabilities are you wont be familiar with, all of the different measures that you can lawfully utilize to gather arrears. Collection agencies are familiar with the rules and regulations and are able to raise debt collection activities to legal acts, whenever required.
Every nation has their own particular laws regarding debt collection agencies and if you have an international debt and do not know where to turn to, you must try to find a debt collection agency with international practice.
Contrasting domestic accounts, when you do business worldwide you wish to monitor all your prospective clients. It is a lot harder to collect debt internationally and you always wish to make certain that you are dealing with a reliable client. An international debt collection agency can be of great assistance to you, regarding this matter, by running background verifications and asset investigations. This way you will be acquainted with what you are getting into before you bankrupt yourself
All in all, Collection agencies enclose the essential expertise, tools and resources to recuperate debt promptly, in a competent and customer-friendly way. Tranquility and gaining money you have been assured are chief rewards of employing a debt collection agency.
Business debt collection is when collecting payments from customers for goods or products that was made on credit basis. Past due or delinquent accounts become a priority on any business and establishing an effective collection strategy is a must. And as easy as it looks this activities are not the most pleasant ones, therefore, represent one of the most stressful activities for business owners.
Keeping track of their accounts receivable is one of the reasons business lost track of accounts that become delinquent (overdue), and the fact that most of the people, even outside of this round, are not comfortable putting pressure in other people to pay. When there is no debt collection plan for the business this may result in a financial crisis.
An effective debt collection plan must be included in all sales plan, collecting the over due account as quickly as possible and rewarding customers to keep paying on time generates a solid financial status and ensure the business stays on track.
When a customer show signs that is not paying on time or not paying at all, this doesn’t mean that you may put all you attention into this account, but been persistent with the accounts that represent problems when collecting the accounts, let’s say that a customer is going through – such as divorce, sickness or unexpected financial problems – When collecting delinquent accounts, a business owner must be on the position of support, presenting the opportunity of getting your customer the feeling that they are getting help from the collector (in this case a business owner, in-house department, etc. ) persevering in a good business relationship is a clue, in most of this cases are temporary and you can recover the debt with out compromising your business relation and the opportunity to sell or provide service to them.
Establishing an action plan depending on the needs of the business will work:
* Establishing Solid Credit Policies. When Businesses are able to identify problems before they occur it’s key, establishing credit limits, base on business credit reports, credit scores, credit history, etc. this provide lenders with a way in how good or bad are clients when is time to pay. This can be as flexible as your cash flow allows. Is advice to revise and adjust the business credit policies yearly, since after a year many things can happen like; change on laws or that a good customer just simply become a pain for other business.
* Debt Collection Plan: Keeping track of A/R, when there is many customers buying on credit basis in a period of time (e.g 30, 45, 60 days) keeping track of this accounts may represent an extraordinary effort. Activate a collection plan where includes series of friendly reminders which can be; phone calls, letters or personal visit, listen what debtors have to say, propose solutions like; payment plans, let them know when you are going to contact them expecting payment, let debtors tell you their story, but always focus the conversation in the debt itself and committing them with payments. This needs to be right away when the account become overdue.
* Debtors don want to pay. When you establish a simple debt collection plan, most of the times this works, but this is not an ideal world and facing debtors that simply wont pay, this can become an stressful experience. Debtor will push until you drop the towel and let them go away without paying. There is when a business needs to turn the account into a Debt Collection Agency, if it is business collection then a Commercial Debt Collection Agency. Commercial Collection Agencies exist because of this debtors that want to make life miserable to business that trust them with products/services, having an army to collect the delinquent account mean that a business keep their focus on their – cash flow, profit and sales – activities. The most easy way to collect this accounts is starting with a commercial collection price quote, this will show you an indication of how soon and how much can be collected.
* Repeat the cycle.
An elaborate plan can be implemented depending on the nature of the business, but when you talk with a commercial collection agency they can help business establish an in-house debt collection plan with a commercial collection support for those difficult to collect. Get an analysis of the accounts receivables and start collecting effectively.
How long do you leave bad debts before start to get serious about debt collection? What lengths do you go to make sure that they get paid in the end? Sometimes it is simply more practical to call in the experts if you want to improve your cash flow and focus on your core business activities. If you are continually chasing debts, this means inefficiently allocating your valuable time. Debt collecting is taking you away from your core business. A debt collection agency can handle the situation in a professional manner and with specific expertise. This may be well worth the costs once you see some positive results.
Here are five reasons why you might need to contact a debt collection agency.
Shows you are serious about debt collection
How frustrating is it for you when the customer continues to ignore all your reminder notices? You may have even phoned or visited the customer in an attempt to see why your bill has not been paid.
If you have been diligent with your efforts to retrieve your bad debt it may be worth your while handing the debt over to a debt collection agency. Demand letters and telephone calls from such agencies increase the seriousness of your debt and highlight to the debtor that you are serious about recovery.
Furthermore, most debt collection agencies are strategically aligned with legal firms and can send demand letters on solicitor letterhead.
Allows you to focus on core business
By allocating your debt to debt collection agency after an agreed timeframe (ie 30/60/90 days), it will ensure that you are not wasting valuable time on collection. Since collection is not your core business, this will allow you to focus on what you do best and leave collection to the experts.
No Down Side
There is no down side in employing the services of a debt collection agency. Most agencies (such as Consolidated Collections Australia) offer their services on a ‘no collection no fee’ basis. Therefore, you will not pay unless the agency collects.
It is important to note however that you can draft your business trading terms in a way to pass on any debt collector fees on to the debtor. This will mean you will not be out of pocket at all. Speak to your debt collection agency about this.
Don’t have the time
Debt collection is a time consuming task and needs to be done properly. Decide at the beginning if you (or your staff) have the time to follow up on bad debts. Do you really want precious hours being wasted on debt collection if an agency can do the job cheaper and with less hassle for you and all involved?
Don’t have the resources
Agencies have the resources and know how to negotiate for outstanding debts. They also have specific debt collection techniques devised over numerous years of experience to give their clients the greatest chance of recovery.
If you struggle with any of the basic needs to recover debt, it will be preferable to your business to put the debt in the hands of someone who knows what they are doing.
Think carefully about the avenues you have tried and, once you have exhausted all other options, look closely at external sources for your debt collection. It makes good business sense to get that ageing debtors list back to 30 days or within your trading terms.
The rate at which people are accumulating debt and the states of the economy at the moment is quite sad. Many people are under a mountain of debt that they cannot pay back. However, there is a problem when you are one of the companies to which debt is owed. As a result of this, some companies resort to hiring a debt collection agency to recover the debt that would like resolved. The rest of this article will deal with some tips on how to hire a debt collection agency.
A debt collection agency is used by businesses or individuals to regain any money borrowed pulse the interest owed. The debt collection agency can be a third party debt collector if the original company has sold the debt to them. In another circumstance, the debt collection agency can only be contracted to act on behalf of the company the debt is owed to. When looking for a debt collection agency, you will need to check a company this is professional, effective, and trustworthy. This company will be acting on your behalf and it is important that they can effectively represent you.
First, when looking on how to choose a debt collection agency, choose an agency that is professional. As stated, they will be speaking to a customer or a client that owes you money. If the agency is not professional, this can hurt your company and your company’s name. Some debt collection agencies had been known to be one step away from threatening people to receive the money owed. This is quite unprofessional behavior and this is not an agency your company would like to be associated with. So before hiring any agency, research the reputation that they have.
Another criteria to look for on how to choose a debt collection agency would be to check if they are effective. One of the main reasons your company will let a third party represent them is because they are able to collect the money owed. Some debt collectors are very ineffective in doing so and this can frustrate the process when your company needs the money. Ask a collection agency you are thinking of hiring, if they have a proven track record collecting debt on behalf of other businesses. They should be able to give you concrete examples of having done so, to retrieve a debt.
A third tip on how to find a debt collection agency would be to choose an agency that is trustworthy. Not only will they represent your company, they will also be collecting money for your company. In some instances, there can be a discrepancy between the amount collected and the amount turned over to you. Therefore, it will be important to check the complaints history of the agency you would like to hire. Check if there has been a history of fraud and if they can be trusted to collect money on your company’s behalf. If you can find the right company, then the pressure of collecting on the debts yourself is greatly reduced.
When you’re running a business the last thing you want to worry about is becoming a collection agency for the bills that people forget to pay, refuse to pay, or just don’t pay for whatever reason. In this economy especially, with people struggling financially, the problem is worse than it was even a year ago. The time you and your employees spend with your business is precious company time, time that should be used to further the business. It should not be used for bill collections, if that’s at all possible.
Lucky for you, as a business owner, there are debt collection agencies which are ready and willing to take bill collecting off your hands. Small business debt collection agencies are specifically designed to work with you and your clients to get the bills paid. You have to pay a small fee, of course, but the fee is tiny compared to the results you’ll be getting. The employees of these agencies are trained in business collections, so they know the techniques and practices that yield results, unlike most business owners who are proficient in their area of expertise, i.e. running a business, but not always proficient in bill collecting.
You may be wondering why on earth a company would be willing to become a debt collector for another business when the fee required to secure the companies services is so small it can hardly be considered a profit. The answer lies in the bills collected. Some agencies require a percentage of the collections for their services, others actually purchase the debt off the company for a percentage of what it’s worth and then turn around and collect the debt for themselves.
In either case both sides win. The business debt collection helps the small company earn back some of its money, while the debt collection agency earns a profit for their services. Most business owners would rather get some of what they’re owed rather than none of what they’re owed. Debt collection agencies know this so they become the affordable solution.
Most businesses have some form of unpaid debt from one or more of their clients. If you are one of these businesses, don’t write the debt off as a total loss of your time and skills. Let a business collection agency help you receive some of that bad debt. Yes, you’ll have to give up some of the profits, but again, some is better than none. It will be worth it to you.
