When creditor businesses choose to outsource their debt collection to a professional collection agency, they must make a smart decision because not absolutely all agencies will be the same. A first-party collection agency is typically a subsidiary of the original 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 flat fee prior to services rendered or may work with a contingency basis, taking only a share of the funds collected.
Why Businesses Should Outsource Their Debt Collection
Debt collectors are specially trained with certain skills, in addition to a thick skin. Also, debt collection agencies have use of a national network of resources, including government officials and private investigators, who can assist them in searching for a debtor and his or 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.
In case a company were to get debts having its own subsidiary agency, then the 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 simply 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 cases, collection agencies provide what’s called pre-collection or soft collection services, meaning sending some letters to the debtor that features instructions on debt repayment with a specific date and consequences of failure to comply, such as for example negative credit reporting and collection action. These agencies charge a fee to creditor businesses beforehand and send the letters at regular intervals.
The situation lies in that debtors simply throw these letters out, aware of their meaning collection agency near me. If the debtor has already been in default, odds are he or she doesn’t have a clear credit history anyway and won’t be bothered by threats of adding further negative marks.
2. Debtors are experienced with playing the exact same game over and over and often simply create a call to the soft recovery agency to buy time, comprehending that the letters is likely to be sent but no action will be studied to accompany those letters. This leads to big delays in the collection process.
3. Mailing the letters is a minimal expense for soft collection agencies because they have their own mailing department. They spend little with this and less on calling and sweet-talking debtors, pocketing the advance they are paid by the company. When they get no results, it doesn’t bother them because they have already collected their fee and deposited it in their bank account.
4. Everyone on the market knows that collection letters from commercial collection firms are ineffective, like the collection agencies. Actually, they are conscious that at some point in the act, the creditor will end up impatient and look for the agency to roll the debtor to a contingency plan.
In comprehending that the letters don’t rein in the debt, businesses should remember that prepaying fees to soft collection agencies sending serial letters is really a waste of time and money. On another hand, collection agencies who charge on a contingency basis work very well, charging only a share of what’s 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 get the largest sum of money possible in a aggressive fashion, while the creditor business collects debt they had practically written off, never expecting to note that cash again. It’s necessary to success to outsource the debt collection process to a professional collection agency, but it’s crucial to never prepay for a smooth debt recovery agency to send letters.