When creditor businesses decide to outsource their debt collection to a professional collection agency, they need to make a wise decision because not totally all agencies would 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 reduced rate (sometimes around 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 on 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, as well as a heavy skin. Also, debt collection agencies have usage of a national network of resources, including government officials and private investigators, who are able to assist them in investigating a debtor and his / her financial status so they’re 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 gather debts which consists of own subsidiary agency, then your brand too would get impacted by the bad publicity. Then, there are always a special group of debt collection skills required – no business can acquire these specialized skills by simply setting up a debt collection department hire collection agency. 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 that includes instructions on debt repayment by way of a specific date and consequences of failure to comply, such as negative credit reporting and collection action. These agencies charge a fee to creditor businesses in advance and send the letters at regular intervals.
The issue is based on 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 clear credit history anyway and won’t be bothered by threats of adding further negative marks.
2. Debtors are experienced with 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 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 small expense for soft collection agencies because they’ve their 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. If they get no results, it doesn’t bother them because they’ve already collected their fee and deposited it within their bank account.
4. Everyone in the market knows that collection letters from commercial collection firms are ineffective, such as the collection agencies. In reality, they’re conscious that at some point in the act, the creditor can become impatient and look for the agency to roll the debtor to a contingency plan.
In realizing that the letters do not rein in the debt, businesses should know that prepaying fees to soft collection agencies sending serial letters is really a waste of time and money. On one other hand, collection agencies who charge on a contingency basis work very well, charging only a percentage 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 gather the largest amount of money possible within an aggressive fashion, as the creditor business collects debt they had practically written off, never looking to note that cash again. It’s necessary to success to outsource the debt collection process to a professional collection agency, but it is imperative to never prepay for a soft debt recovery agency to send letters.