If you’re considering leaving a credit card or hospital bill unpaid, be aware of the fact that doing so for long enough will almost certainly result in your creditor remanding the full balance you owe to a collection agency for debt recovery. A debt collection agency is any organization whose sole purpose is to collect overdue debts.
Debt Collection agencies usually purchase old debts directly from businesses that wish to clear their accounting ledgers. Very few businesses, if any, will sell their old debts to collection agencies before the debt goes six months without any activity. After the six month mark, most companies consider the debtor unlikely to ever pay and prefer to take a loss on the account rather than continue to dedicate corporate resources to collection activity. Occasionally, third-party collection organizations also work on commission.
When collection consumer debts, all debt recovery organizations must follow the Fair Debt Collection Practices Act (FDCPA) to ensure that each consumer’s rights are respected throughout the collection process. The FDCPA dictates that collection agents cannot harass debtors, misrepresent themselves or the company they work for or disclose private consumer information with anyone other than the consumer. Failing to do so could result in a lawsuit.
Debt Collection agencies frequently report each of their accounts to the credit bureaus. When a company reports an account to the credit bureaus, a trade line appears on the debtor’s credit report. In the case of adverse accounts, such as collection accounts, the trade line is derogatory and will always have a damaging effect on the debtor’s credit rating.
It could be argued that an internal credit control department provides the same service as a debt collection agency. However, a debt collection agency can often provide better results whilst being more cost effective. The effect of a third party debt recovery agency becoming involved should also not be underestimated. Often, a simple demand for payment from a third party agency can be the prompt a debtor requires to settle an unpaid account.
A debt collection agency can also provide additional services to the core business of debt recovery. For instance, a collection agency may also provide legal services, enquiry agents, process serving, company searches, credit reports & company formations in addition to debt collection services. An agency providing all of these services can therefore be a “one stop shop” for all your credit control requirements.
A debt collection agency may also have its own in house legal department employing solicitors & legal clerks. Such firms provide a real alternative to the traditional option of employing a solicitor & often at a fraction of the cost. A debt recovery agency with an in house legal department often provides a much more professional service than a firm of solicitors, who may not be specialists in the debt recovery arena.
Debt collection agents often have a less than desirable image. However, in recent years much has been done to regulate the industry to ensure that an efficient & ethical service is provided at a reasonable price. Ensure that any debt recovery agency you consider engaging is regulated by the relevant governing bodies & holds the appropriate licenses & accreditations.
When considering engaging a third party agency also make sure that you understand the fees & pricing structure. Avoid any collection agency that requires payment upfront or requires you to purchase credits or join any form of membership scheme. A reputable debt collection agency will have a clear & concise fee structure which will usually be a set commission on any monies recovered.
Choosing the right debt collection agency will assist to reduce your credit control costs, will reduce your debtor days & therefore make your business more profitable whilst at the same time leaving you with more time to run your business.
Deciding on your debt collection agency is a task which is crucial for your business. You cannot afford to get it wrong. Keeping a few points in mind while choosing your debt collection agency would help.
Debt Collection Agencies (DCAs) offer third-party assistance when your best efforts to collect debt are thwarted. They are a pre-legal course you could take for debt collection. Services of a reputable debt collection agency are designed to protect your reputation, retain your customer base and maximize your cash flow. However, you should examine all debt collection agencies on the table against some basic criteria. Decide on a DCA that ticks all of your boxes.
How to Choose Your Debt Collection Agency
Following a well thought out procedure while selecting a Debt Recovery Agency will always help.
Search
Searching the database of the Credit Services Association (CSA) is the best place to look for a Debt Collection Agency (DCA). The CSA is the umbrella body for the collection industry, which bounds its members with its Code of Practice. This ensures legal and ethical practices, high business standards, and fairness in dealing with your customers.
However, before you visit CSA website, you should determine whether you need B2B or B2C competent debt collectors. Every agency has its core competency in B2B or B2C debt collections. Both the streams require different skills sets and working practices are also different. So look at this aspect before taking the final call.
Shortlist
When you have readied a shortlist of DCAs, begin testing their openness, integrity and customer service skills. For determining their level of competency, ask them following questions:
* Do you have customers in my particular business stream?
* Can you offer me references that I can contact?
* Do you operate on a no-collection-no-commission basis?
* What are your remittance rules?
* Do you provide online performance reporting?
If the debt collection agency provides satisfactory answers to your questions, you can move ahead.
Satisfy
Now is the time to take a final call on appointing the DCA. Make an appointment with the DCAs you have finalized and put up all the queries you have. You could ask them whether they have in-house tracing system to locate absconded debtors, their skills regarding overseas collection, and in-house legal assistance.
Whether the debt collector will accept a payment arrangement depends on the debt collector, the debt, the amount you’re proposing to pay, and the amount of time the collector has had the debt. If you’re only able to make smaller monthly payments on your debt, contact the collection agency handling the debt and ask for a payment arrangement.
Debt collectors typically hold debts for about six months, so if you’ll have more success making a payment arrangement in the first month or two after the collector contacts you. On the other hand, if you wait a few months before proposing a payment arrangement, the collector might refuse or push for a higher payment since it will be losing the account soon.
Note that if you make a payment arrangement with a debt collector, it can restart the statute of limitations on the debt. The statute of limitations limits the amount of time the debt collector can sue you for the debt. This time limit varies by state and is usually between three and six years, but can be as long as 15 years.
Before you suggest a payment arrangement, review your budget to figure out how much you can afford to repay each month. Don’t let the collector push you into paying more than you can afford to. If the collector doesn’t accept payment arrangements, you can put aside some money each month until you’ve saved up enough to pay the account in full.
The Fair Debt Collection Practices Act (FDCPA) protects you against harassment from a debt collector, and your state may have additional laws governing what collection agencies can, and cannot do. To find out about laws in your own state, contact your state’s attorney general.
Under the Fair Debt Collection Practices Act, a debt collector is defined as anyone who collects debts on a regular basis. This does include attorneys, but only if they do so on a regular basis.
Debt collectors may pursue you for personal, family, and household debts. If your business structure is set up so that you are personally liable for debts, a debt collector may pursue you personally for repayment.
How a Debt May Collector Contact You
As long as the times or places are not “inconvenient” or excessive, a debt collector may contact you by:
• Telephone
• Fax
• Telegram
• Mail
• Email
A debt collected can also contact you in person, or by any other means to times that you have agreed to.
Is a Debt Collector Allowed to Contact You at Work?
A debt collector can only contact you at work only if your employer approves, otherwise, you can simply say that you are not permitted personal calls at work.
Is a Debt Collector Allowed to Contact Anyone Else About Your Debt?
If you ask a debt collector to contact an attorney on your behalf, they may not contact you again. If you do not have an attorney, a collector may contact other people only to:
• Ask your phone number, and
• Where you work.
Debt collectors can only contact third parties to ask information about one time. In most states, collectors may not tell anyone that you owe money, or lie about who they are or why they are calling.
A debt collection agency is a business that collects unpaid, past due debts for other businesses. A company you do business with might send your account to a debt collection agency after you fail to pay your bill for a few months. Debt collection agencies use several different methods to get you to pay your unpaid debt including: calling you at home and work, sending letters to your home, listing the debt on your credit report, and sometimes even filing a lawsuit against you.
Debt collector may refer to a specific person working for a collection agency or sometimes it refers to the entire collection agency.
Debt collection agencies collect debts for a fee or percentage of the total amount owed. This fee is based on how old the debts are (the fresher the better) and how much business a creditor has to offer. The standard rate in the industry for business-to-business accounts is 30 per cent. The rate for collecting consumer accounts is higher.
However, debt collection agencies have experience with and knowledge about debt collection that we, as individual business owners, don’t have and hiring one can be well worth it if the amount of outstanding accounts receivable warrants it.
Proactive Policies Are the Best Way to Get Paid
As you’ve already guessed, the best ways to ensure you get paid for the products you sell and the services you provide is set proactive policies and procedures in place to cut down on the number of delinquent accounts receivable your small business has to deal with.
Things such as having credit policies in place, performing credit checks on customers and clients, having a partial payment policy and being clear and upfront about your payment expectations both in person and on your invoices will go a long ways towards ensuring that you get paid and your small business doesn’t get stuck with a lot of bad debt.
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 debt 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 debt 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.
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.
Every small business runs on cash, and cash only comes in when you collect money that is due you. Set up a debt collection system, with billing, accounts receivable management, and collection practices that include small claims court and which abide by the Fair Debt Collection Practices Act. Start now to get the money your customers owe you.
1. How to Get Paid
Rule #1 in collecting debts: The longer a debt is owed, the less likely you are to collect it. Rule #2 in collecting debts: Some people won’t pay, no matter what. A system for collecting the money your customers owe can help you keep going, with Rule #1 in mind and minimizing the number of people who become Rule #2.
Set up your debt collection system when you first start your business, keep tweaking it to improve your collections, and you will maximize your cash flow from receivables.
2. Set up Your Billing System
Before you start your business, take some time to determine how you will bill customers. Putting together a billing system and plan will help you collect more money faster. How often will you bill? How will you communicate with customers who owe you money? Will you make phone calls? Send letters? Both?
Don’t wait until you have a ton of receivables to collect. Start now to develop that system, always remembering Rule #1.
3. Abide by the Fair Debt Collections Practices Act (FDCPA)
The Fair Debt Collections Practices Act (FDCPA) does not apply to business debtors, but you must abide by it when attempting to collect money from consumers. The Act protects consumers against harassment and privacy violation by creditors and it regulates who you can contact, how often, and how you can represent yourself. Consumers can bring lawsuits against bill collectors, so please read this article before you contact customers about debts owed to your business.
4. Use an Accounts Receivable Aging Report to Monitor Collections
An accounts receivable aging report is an important tool to help you monitor outstanding bills and see what needs to be collected. This report can show you who owes how much and how long it has been unpaid. With this information, you can set your collections strategy for individual customers.
5. Take Your Collections Case to Small Claims Court
Small claims court is a good possibility for collecting money owed you, if the amount owed is small (under the small claims limit for your state) and you don’t expect to do business with this customer again.
6. If Your Debt Collections Efforts Don’t Work
Remember Rule #2 above? Some people just won’t pay, no matter what you do. So, what now? Find out how to write off a bad debt at the end of a year and take a tax deduction for the loss of sales.
7. Sell Your Accounts Receivable
Selling accounts receivable is a common business practice called “factoring.” You can sell your receivables to someone who will pay you for them – at a discounted value, of course. Then the factor collects the money. If you are short of cash, factoring can be a good way to raise some quickly.
