No matter what your business is or what its size is, at some point or another debt collection will become an issue for you. Following are the basics of debt collection so you can find out what you need to know in order to decide whether to handle it yourself or if you need a collection agency to help you.
The first thing you need to know is that some collection agencies will actually buy debt from you. This means they pay you an agreed-upon percentage of what’s owed you, and then they own the rights to whatever money they get back from the debtor. If you need some of your money back right away this may be the way to go regarding debt collection. Another option is to let them take a percentage of the money after they collect it. Either way, you don’t have to outlay money up front so it’s favorable to you to hire a collection agency.
The first step an agency will take is to send a letter on your behalf informing the debtor of the money owed and giving them 30 days to dispute the facts regarding the case. Most debtors do not respond to these letters, at which point the collection agency starts calling them.
Next you want to report the delinquent account to a credit bureau. Sometimes merely threatening this makes consumers who care about their credit rating pay up. If it doesn’t, you or your collection agency still need to report the debt to the credit bureau. Down the road when the debtor needs a loan they may come to you and try to work it out in exchange for removing the delinquent report, so it’s insurance that the debt will be paid.
The next step a collection agency might take is to hire a private investigator or use private investigation software in order to locate the debtor if they’re having trouble getting him or her on the phone. If you’re not using an agency, you can do this yourself with websites like Net Detective or Intellius.
Finding the debtor when he or she is trying to hide can be very intimidating and often is enough to get him or her to pay up on what they owe you. Most debtors try to avoid calls from debt collectors, and when they realize this strategy won’t work they start to become amenable to resolving the problem.
The reasons to do this are many. First, if you can’t get the debtor on the phone, it’s impossible to work out payment arrangements with him or her. The other thing is that some debtors, when they learn they can’t hide from you, become much more amenable to working things out in order to stop the collections calls and letters.
The final process in debt collection is working out a payment agreement for the delinquent account. While ideally you’d love to get the whole amount paid, most of the time this isn’t possible up front, which leaves you with one of two choices. You can get a partial settlement paid in a lump sum, or work out a payment plan. Each method of debt collection has its benefits; the lump sum will give you more money up front, while the payment plan can earn you more money in interest.
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Tags: accounts receivable, collection agency, Credit, debt collection, debt management, debt recovery, Finance, financial, profit recovery