When creditor businesses decide to outsource their debt collection to a commercial collection agency, they need to make a wise decision because not all agencies would be the same. A first-party collection agency is normally a subsidiary of the first creditor, while third-party agencies operate by either buying debt at a discounted rate (sometimes up to 90% discount) or by representing the creditor in the collection process. These third-party debt recovery agencies may charge a set fee prior to services rendered or may focus on a contingency basis, taking only a portion of the funds collected.
Why Businesses Should Outsource Their Debt Collection
Debt collectors are specially trained with certain skills, along with a thick skin. Also, debt collection agencies have access to a national network of resources, including government officials and private investigators, who can assist them in tracking down a debtor and his or her financial status so they are better able to assess repayment situations. Also, debtors tend to drag the name of the recovery agency through the mud.
If a company were to gather debts using its own subsidiary agency, then a brand too would get impacted by the bad publicity. Then, there are certainly a special pair of debt collection skills required – no business can acquire these specialized skills just by establishing a debt collection department. Therefore, it makes sense to outsource debt collection to a third-party commercial collection agency.
Why Businesses Must Never Prepay For Third Party Debt Collection
1. In some instances, collection agencies provide what is called pre-collection or soft collection services, which means sending some letters to the debtor which includes instructions on debt repayment by way of a specific date and consequences of failure to comply, such as negative credit reporting and collection action. These agencies charge a fee to creditor businesses beforehand and send the letters at regular intervals.
The problem is based on that debtors simply throw these letters out, aware of the meaning. If the debtor has already been in default, chances are he or she doesn’t have a clean credit history anyway and won’t be bothered by threats of adding further negative marks.
2. Debtors are familiar with playing exactly the same game over and over and often simply produce a call to the soft recovery agency to purchase time, realizing that the letters is likely to be sent but no action will be used to accompany those letters hire a collection in the USA. This leads to big delays in the collection process.
3. Mailing the letters is a minor expense for soft collection agencies because they’ve their particular mailing department. They spend little on this and less on calling and sweet-talking debtors, pocketing the advance they are paid by the company. If they get no results, it doesn’t bother them because they’ve already collected their fee and deposited it within their bank account.
4. Everyone in the market knows that collection letters from commercial collection firms are ineffective, like the collection agencies. In reality, they are aware that sooner or later along the way, the creditor will become impatient and look for the agency to roll the debtor to a contingency plan.
In realizing that the letters don’t rein in the debt, businesses should remember that prepaying fees to soft collection agencies sending serial letters is just a waste of time and money. On the other hand, collection agencies who charge on a contingency basis work well, charging only a portion of what is actually collected. This leaves the creditor business with zero risks.
In this situation, everyone wins since the contingency agency needs the income and fights to gather the largest sum of money possible in a aggressive fashion, whilst the creditor business collects debt they had practically written off, never hoping to see that cash again. It’s necessary to success to outsource the debt collection process to a commercial collection agency, but it is vital to never prepay for a smooth debt recovery agency to send letters.