If you are a business owner involved in credit transactions, one valuable resource you need to include in your arsenal is a partnership with a debt collection agency. Collecting payment from debtors can become time-consuming, tedious, and stressful when they are no longer cooperating.
Although a collection agency is considered a last resort, there is no discounting the effectiveness of their methods. In this article, we will take a closer look at what a debt collection agency is, and what it can do to help your business.
What is a debt collection agency?
A collection agency works explicitly with creditors and lenders to recover past due payments. Before a creditor resorts to the services of a debt recovery agency, it is essential to exhaust all possible methods to attempt getting paid.
For more prominent companies, it is possible to use resources and operate an internal collections team. However, for smaller enterprises and individual creditors, outsourcing is the only viable solution.
How does debt collection work when you outsource an agency?
When a debtor is in default, it is likely going to impact their credit rating. Before a creditor outsources an agency, it is still possible to prevent adverse credit from happening. However, as soon as the debt gets turned over, it will adversely impact the client’s credit.
For every successful attempt at collecting debt, the agency gets to keep a percentage of the proceeds as payment for their services. The debtor may also keep the original payment terms agreed upon by the creditor, whether to pay the debt in full or in instalments.
What happens if the debtor does not pay?
Once you hire a collection agency, you are trusting in their expertise to employ allowable strategies to recover funds. Some of these methods include:
- Sending late payment notices
- Calling the debtor
- Attempting to contact other references who personally know the debtor to verify contact details
- When all else fails, visiting the debtor personally
It is essential to understand that a reputable collection company ensures that they comply with the law in any of these attempts to retrieve money owed. After all, the debtor has rights also, and they need to be respected. It is the agency’s role to follow-up, encourage, and remind the debtor to fulfil their obligations.
When after all these attempts, the debtor still does not pay, the agency will have it recorded in the debtor’s credit report. The creditor may also resort to additional legal action against the debtor, which will be highly detrimental as the lender may demand payment for damages caused.
In conclusion, working with a debt collection agency relieves the lender of the more challenging aspects of recovering payment. It also helps minimise business losses, especially when there are multiple default accounts.
These agencies are professionals and trained in the complex task of collection. Hence, if you are having any trouble with debtors or unpaid accounts that are already hurting your bottom line, do not hesitate to enlist the help of a reputable debt collection agency.