When creditor businesses decide to outsource their debt collection to a commercial collection agency, they should make a wise decision because not absolutely all agencies would be the same. A first-party collection agency is normally a subsidiary of the initial creditor, while third-party agencies operate by either buying debt at a discounted rate (sometimes around 90% discount) or by representing the creditor in the collection process. These third-party debt recovery agencies may charge a flat fee before 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 heavy skin. Also, debt collection agencies have usage 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’re better able to assess repayment situations. Also, debtors often drag the name of the recovery agency through the mud.
If your company were to get debts which consists of own subsidiary agency, then the brand too would get impacted by the bad publicity. Then, there are a special pair of debt collection skills required – no business can acquire these specialized skills by simply setting up 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’s called pre-collection or soft collection services, meaning 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 example 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 their meaning collection agency for small business. If the debtor is 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 knowledgeable about playing the same game over and over and often simply create a call to the soft recovery agency to get time, realizing that the letters will soon be sent but no action will be taken to accompany those letters. This results in big delays in the collection process.
3. Mailing the letters is a minimal 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’re paid by the company. When 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 on the market knows that collection letters from commercial collection firms are ineffective, such as the collection agencies. Actually, they’re aware that sooner or later in the process, the creditor will become impatient and ask for the agency to roll the debtor to a contingency plan.
In realizing that the letters do not rein in the debt, businesses should be aware that prepaying fees to soft collection agencies sending serial letters is a waste of time and money. On one other hand, collection agencies who charge on a contingency basis work nicely, charging only a share of what’s actually collected. This leaves the creditor business with zero risks.
In this case, everyone wins as the contingency agency needs the income and fights to get the greatest sum of money possible in an aggressive fashion, while the creditor business collects debt they’d practically written off, never hoping to observe that cash again. It’s important to success to outsource the debt collection process to a commercial collection agency, but it is imperative to never prepay for a soft debt recovery agency to send letters.