If you own a business, you must know how important it is to collect the payment for the services you render to keep your business afloat.
Unfortunately, not all customers are trustworthy, and as a business owner, you may not have enough time to make frequent telephone calls or write letters to collect delinquent debts.
Hiring a debt or credit collection firm is one of the best decisions you can make for your business, as the older the debt gets, the harder it becomes to collect.
Here is everything you need to know about a credit collection firm and how does it work?
What Is Meant By Credit Collection?
Credit collection is a process of recovering the default and past-due credit loans from the consumer in debt on behalf of the creditor.
Credit collection is done either by the creditors themselves, a lawyer, or a professional debt collection agency.
If you have 3-6 months of unpaid credit card debt, medical bills, or rent, you can hire a third-party person or a credit collection agency to collect the debt in exchange for the percentage of the amount they collect.
Credit collection proceedings usually include pre-legal calls, tracing calls, emails, letters, and exceptional legal proceedings in compliance with government-approved laws and court procedures.
How Does Credit Collection Work?
When an account becomes delinquent for more than 60 days, the creditors contact the credit collection agencies to recover the payment.
Initially, the collector in the lending company will contact the customer in debt and ask them to clear the dues within a specific time.
The credit firm acts as a middleman between the creditor and the consumer and gets paid only if they successfully recover the debt.
However, suppose the consumer fails to clear the dues. In that case, the creditor will then send a third-party debt collector, and the borrower will then owe the collection agency directly rather than owing the original creditor.
In this scenario, things get worse for the borrower because more laws will be involved, plus debt collection agencies are more rigid than originating creditors when collecting a debt.
Read: What is Unsecured Vs. Secured Debt?
Types Of Credit Collectors
There are two types of third-party credit collectors:
- Agencies that collect on a creditor’s behalf
- The agencies that purchase the debt from the lender
- Agencies that Collect on a Creditor Behalf
- These agencies collect the payments in exchange for a percentage of the money they collect, typically 25% to 50%.
- Agencies that purchase debt from the lender
These agencies buy the debt from the lender and only make money when they collect a debt.
Benefits Of Hiring A Credit Collection Firm
Here are some benefits of hiring a credit collection firm:
- Legal security
Customers are very well informed these days and will not hesitate to sue if their rights are violated.
Credit collection agencies are well-aware of all the laws and the technicalities involved allowing them to eliminate the legal risks involved in collecting the debts on their own.
Debt collection firms keep a complete record of their interaction with the debtors, so if you want to sue the debtor in the future, you will have a complete record of each time you attempt to contact the debtor to prove in court how much effort you have put in the to recover the debt.
- Guaranteed Debt Recovery
Hiring a credit collection firm will increase your chances of successfully collecting your unpaid debts.
They are more experienced in communicating with the debtors and know the best techniques to make the debtors pay back their debt.
Note: Consider hiring a debt relief company if the credit collection firm is using unauthorized methods to communicate or recover debts.
Amit Gupta is the founder of National Planning Cycles, a company that helps startups, individuals, and small businesses with their financial planning. He has a vast amount of experience in the finance sector, having managed Google Play accounts for some of the world’s most successful unicorns. Amit is an expert in his field, and he uses his knowledge to help others achieve their individual goals.