No matter what your business is or what its size is, at some point or another debt collection will become an issue for you. Following are the basics of debt collection so you can find out what you need to know in order to decide whether to handle it yourself or if you need a collection agency to help you.
The first thing you need to know is that some collection agencies will actually buy debt from you. This means they pay you an agreed-upon percentage of what's owed you, and then they own the rights to whatever money they get back from the debtor. If you need some of your money back right away this may be the way to go regarding debt collection. Another option is to let them take a percentage of the money after they collect it. Either way, you don't have to outlay money up front so it's favorable to you to hire a collection agency.
Debt collectors work with certain proven tools. You may think you're collecting debt by sending copies of your invoice but collections letters need to inform the debtor that they have 30 days to respond if they wish to dispute the facts. It's often a good idea to send repeated copies of this type of letter so it can be a little bit time consuming. In addition, if the debtor does dispute the debt, you'll have to know how to prove your version of the facts. Debt collection professionals handle this type of problem every day.
Next you want to report the delinquent account to a credit bureau. Sometimes merely threatening this makes consumers who care about their credit rating pay up. If it doesn't, you or your collection agency still need to report the debt to the credit bureau. Down the road when the debtor needs a loan they may come to you and try to work it out in exchange for removing the delinquent report, so it's insurance that the debt will be paid.
However, some consumers won't pay, in which case you still need to actually report the debt to the credit bureaus. This is a very time-consuming process because it often results in a back-and-forth. You report the debt, the consumer disputes it, you have to back up your accusation and the consumer gets another chance to respond. Sometimes the consumer will contact you asking to work something out where in return for payment, you agree to let their credit report be expunged. This is illegal in some places so using a collection agency that is well aware of legal requirements can save a lot of problems down the road.
Finding the debtor when he or she is trying to hide can be very intimidating and often is enough to get him or her to pay up on what they owe you. Most debtors try to avoid calls from debt collectors, and when they realize this strategy won't work they start to become amenable to resolving the problem.
The final stage in debt collection is when you or your collection agency work out an agreement with the debtor. Professional collections people start out by asking for full remittance but since most people who have delinquent accounts are experiencing financial difficulties, it may be preferable to get them to pay a percentage of the debt owed immediately, or work out a repayment plan.
There's a lot to be said for getting a partial settlement right away, because the more time goes on the less likely it is that you will recover the debt. However, if you work out a payment plan you'll also make more money on interest over time, so this is a perfectly legitimate resolution to debt collection problems as well. Either way, using debt collection techniques that debt collectors use will help you get more of your money back.
The first thing you need to know is that some collection agencies will actually buy debt from you. This means they pay you an agreed-upon percentage of what's owed you, and then they own the rights to whatever money they get back from the debtor. If you need some of your money back right away this may be the way to go regarding debt collection. Another option is to let them take a percentage of the money after they collect it. Either way, you don't have to outlay money up front so it's favorable to you to hire a collection agency.
Debt collectors work with certain proven tools. You may think you're collecting debt by sending copies of your invoice but collections letters need to inform the debtor that they have 30 days to respond if they wish to dispute the facts. It's often a good idea to send repeated copies of this type of letter so it can be a little bit time consuming. In addition, if the debtor does dispute the debt, you'll have to know how to prove your version of the facts. Debt collection professionals handle this type of problem every day.
Next you want to report the delinquent account to a credit bureau. Sometimes merely threatening this makes consumers who care about their credit rating pay up. If it doesn't, you or your collection agency still need to report the debt to the credit bureau. Down the road when the debtor needs a loan they may come to you and try to work it out in exchange for removing the delinquent report, so it's insurance that the debt will be paid.
However, some consumers won't pay, in which case you still need to actually report the debt to the credit bureaus. This is a very time-consuming process because it often results in a back-and-forth. You report the debt, the consumer disputes it, you have to back up your accusation and the consumer gets another chance to respond. Sometimes the consumer will contact you asking to work something out where in return for payment, you agree to let their credit report be expunged. This is illegal in some places so using a collection agency that is well aware of legal requirements can save a lot of problems down the road.
Finding the debtor when he or she is trying to hide can be very intimidating and often is enough to get him or her to pay up on what they owe you. Most debtors try to avoid calls from debt collectors, and when they realize this strategy won't work they start to become amenable to resolving the problem.
The final stage in debt collection is when you or your collection agency work out an agreement with the debtor. Professional collections people start out by asking for full remittance but since most people who have delinquent accounts are experiencing financial difficulties, it may be preferable to get them to pay a percentage of the debt owed immediately, or work out a repayment plan.
There's a lot to be said for getting a partial settlement right away, because the more time goes on the less likely it is that you will recover the debt. However, if you work out a payment plan you'll also make more money on interest over time, so this is a perfectly legitimate resolution to debt collection problems as well. Either way, using debt collection techniques that debt collectors use will help you get more of your money back.
About the Author:
David P. Montana has three decades experience as an industry professional, business advisor and renowned writer in collection agency services. David offers additional helpful tools and resources about nationwide debt collection services.
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