When creditor businesses elect to outsource their debt collection to a commercial collection agency, they need to make a wise decision because not absolutely all agencies are the same. A first-party collection agency is usually a subsidiary of the first creditor, while third-party agencies operate by either buying debt at a reduced rate (sometimes as much as 90% discount) or by representing the creditor in the collection process. These third-party debt recovery agencies may charge an appartment fee in advance of services rendered or may work with a contingency basis, taking only a percentage 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 use of a national network of resources, including government officials and private investigators, who is able to assist them in searching for a debtor and his / her financial status so they are better in a position to assess repayment situations. Also, debtors tend to drag the name of the recovery agency through the mud.
If your company were to collect debts using its own subsidiary agency, then a brand too would get impacted by the bad publicity. Then, there are certainly a special set of debt collection skills required – no business can acquire these specialized skills just by creating a debt collection department debt collection agency near me. Therefore, it’s wise 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, this means sending a series of letters to the debtor which includes instructions on debt repayment with a specific date and consequences of failure to comply, such as for instance negative credit reporting and collection action. These agencies charge a fee to creditor businesses in advance and send the letters at regular intervals.
The problem lies in that debtors simply throw these letters out, aware of the meaning. If the debtor is in default, chances are he or she doesn’t have a clean credit history anyway and will not be bothered by threats of adding further negative marks.
2. Debtors are knowledgeable about playing the exact same game over and over and often simply produce a call to the soft recovery agency to purchase time, knowing that the letters is going to be sent but no action will be used to accompany those letters. This results in big delays in the collection process.
3. Mailing the letters is a minor expense for soft collection agencies because they’ve their very own mailing department. They spend little on this and less on calling and sweet-talking debtors, pocketing the advance they are paid by the company. Should they get no results, it doesn’t bother them because they’ve already collected their fee and deposited it in their bank account.
4. Everyone in the industry knows that collection letters from commercial collection firms are ineffective, such as the collection agencies. In fact, they are conscious that sooner or later in the act, the creditor will become impatient and look for the agency to roll the debtor to a contingency plan.
In knowing that the letters don’t rein in the debt, businesses should know that prepaying fees to soft collection agencies sending serial letters is just a waste of time and money. On one other hand, collection agencies who charge on a contingency basis work nicely, charging only a percentage of what is actually collected. This leaves the creditor business with zero risks.
In this example, everyone wins as the contingency agency needs the income and fights to collect the largest amount of money possible within an aggressive fashion, whilst the creditor business collects debt they’d 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 crucial to never prepay for a smooth debt recovery agency to send letters.