Settle Debt With Collection Agency

Settle Debt With Collection Agency

When To Use A Collection Agency

What is a collection Agency?

A collection agency is a specialized organization that acts on behalf of a creditor to collect overdue amounts. A collection agency usually does not take ownership of the debt but just acts on behalf of its clients to organize the collection activity. It does not guarantee the collection.

Why do people fail to pay?

There are many reasons why people do not pay on time. A lot of the time people just don't want to pay. Sometimes genuine financial difficulties, particularly of a temporary nature, are among the causes. In such cases, the person is likely to pay as soon as his financial problems are over.

The downside of using a collection agency

The persons owing the money generally view using a collection agency with apprehension. This makes them view the approach by a collection agency in a negative light. This might cause them to resist any attempts to collect money from them, even if it's genuine. Moreover, it might result in loss of genuine and valuable customers, from whom the money would come to you in course of time, although they might have delayed the payment temporarily or in a particular case.

It is, therefore, apparent that using a collection agency should generally be the last resort. There are a few collection agencies that specialize in early intervention on a diplomatic basis.

Use a collection Agency when the case is clear

The thing that can be inferred straightaway from the above is that you should use a collection agency when you are reasonably certain that the party has the capacity to pay, is obliged to pay the amount, and is refusing or is unwilling to pay. Also the debt should be due - in fact overdue. It's always better to wait for a short while and make your own attempts through reminders and follow up with the party before you approach a collection agency.

When not to use a collection agency

You should also consider when it is inappropriate to use a collection agency. There are many situations in which the debtor may have her own defense, and initiation of any formal or legal proceedings may become counterproductive and lead to unnecessary delays and complications. First of all, you should consider whether the debtor - the person owing the money to you - has, or thinks he has, a valid reason for not paying. If this is the case, it is very likely that he would be prepared for a fight even if it means a prolonged legal battle. This works to the advantage of neither of you. In such cases, it is better to first try and sort out the issue, if possible. Among other things, this is going to happen if the amount in question is under dispute. If this the case find out the cause for the dispute and try to settle it through proper communication and discussion. Another thing that might happen is that there is another claim against you that the debtor is trying to adjust against the current debt. In this case it is better to sort out the issue in totality.

Other difficulties and issues

Even where the debtor has no valid reason there might be circumstances under which it might become difficult to recover the amount legally. For example the debtor might not be solvent enough to pay the amount. Legal recourse would only establish your right at the most, but would not obtain the payment to you. Bankruptcy also prevents collection activities.

The cost of using the services of a collection agency

You must remember that using a collection agency involves payment of fees to the agency itself. Another consideration is the fact that legal proceedings initiated by the collection agency under circumstances similar to the ones outlined above could make your life more difficult and make the collection process long drawn out and of uncertain outcome. Because of this, it is better that you retain control over this process and over the decision as to if and when to proceed legally.

When you have security

If you possess a collateral security, it is best not to proceed legally or engage a collection agency if you can use the security to recover your amount.

About the Author

Steve Austin is a collections consultant and contributor to Collection Agency Services.

5 Useful Tips For Choosing the Right Debt Collection Agency

Timely debt collection is crucial to the success of your business.

If you have tried all the conventional methods but are still struggling to get your customers to settle their accounts, you may need to look at outsourcing the collection of such debts to collection agency.

Choosing the right debt collection agency will be easier and more effective if you consider these five useful tips.

1. Licensed Agency

You must ensure that the agency you outsource your unpaid debt to is appropriately licensed. There are stringent licensing obligations (that vary from State to State). All debt collection agencies must hold the appropriate licence.
The licensing laws impose certain obligations on licensees and set out grounds on which the relevant licensing authority can refuse to grant or cancel a licence. This regime helps govern and monitor all agencies performing debt collection services.

2. Fee Structure

There are many variations of fee structures for debt collection within the industry.

A cost effective industry fee structure is one where a debt collection agency charges on a ‘no collection no commission' basis. In this case, you would not be out of pocket anything unless the debt had been paid. Only once the debt is paid, would a commission be payable to the debt collection agency. If the original debt is recovered, no commission is payable to CCA. It is therefore in the collection agency's best interest to ensure your debt is recovered successfully.

Each agency may charge a different commission on moneys collected. You should take this all into account before selecting a debt collection agency.

Whichever fee structure you decide on make sure everything is in writing before giving the go ahead for the service and ensure there are no hidden costs or lock in contracts (which may attract termination fees).

3. Agreement

Read the agreement (or terms and conditions) thoroughly and yes, that includes the fine print. Make sure you understand the Terms and Conditions before signing any document as these will govern the terms of the arrangement between you and the debt collection agency. Get advice if you're not clear on the terminology or ask as many questions as you need to put your mind at rest.

4. Experience Within Your Industry

Although you will find the larger agencies have clients from a variety of industries it is always better to go with a company that knows your business and has experience within your industry or at least understands your organisation's structure and policies and maintains the sufficient expertise.

5. Professional profile

As a further reassurance check that the agency has a professional profile that you are comfortable with, as they are in a way, an extension of your business or certainly represent your business in their dealings with your customers.

Summary

Letting bad debt accumulate without putting steps in place to try and recover the debt is not good for cash flow and can adversely effect the successful operation of your business.

Taking a few precautions and outsourcing your debt to the correct agency can save headaches and time down the track. This allows you to focus on what you do best. After all, the whole idea of using debt collectors is to get your outstanding accounts paid.

 

About the Author

Consolidated Collections Australia are specialists in debt recovery and work on a No Collection No Fee basis. With over 30 years experience, CCA have developed a proven collection formula which provides industry leading results, giving you the best chance of recovering your debts as quickly as possible. For more information, visit Debt Collection.