When creditor businesses decide to outsource their debt collection to a professional collection agency, they have to make a smart decision because not absolutely all agencies will be the same. A first-party collection agency is normally a subsidiary of the first creditor, while third-party agencies operate by either buying debt at a reduced rate (sometimes as much as 90% discount) or by representing the creditor in the collection process. These third-party debt recovery agencies may charge a flat fee in advance of services rendered or may work with a contingency basis, taking only a portion of the funds collected.
Why Businesses Should Outsource Their Debt Collection
Debt collectors are specially trained with certain skills, along with a thick skin. Also, debt collection agencies have use of a national network of resources, including government officials and private investigators, who will assist them in searching for a debtor and their financial status so they’re better able to assess repayment situations. Also, debtors have a tendency to drag the name of the recovery agency through the mud.
If a company were to gather debts using its own subsidiary agency, then the brand too would get impacted by the bad publicity. Then, there are certainly a special pair of debt collection skills required – no business can acquire these specialized skills simply by creating 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 is called pre-collection or soft collection services, this means sending a series of letters to the debtor that features instructions on debt repayment with a specific date and consequences of failure to comply, such as negative credit reporting and collection action hire a collection agency. 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 these meaning. If the debtor is in default, odds are he or she doesn’t have a clear credit history anyway and will not be bothered by threats of adding further negative marks.
2. Debtors are familiar with playing the exact same game over and over and often simply create a call to the soft recovery agency to buy time, understanding that the letters will undoubtedly be sent but no action will be used 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 particular mailing department. They spend little with 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 inside their bank account.
4. Everyone on the market knows that collection letters from commercial collection firms are ineffective, including the collection agencies. Actually, they’re aware that at some point in the process, the creditor can become impatient and ask for the agency to roll the debtor to a contingency plan.
In understanding that the letters don’t rein in the debt, businesses should know that prepaying fees to soft collection agencies sending serial letters is just a waste of time and money. On one other hand, collection agencies who charge on a contingency basis work nicely, charging only a portion of what is actually collected. This leaves the creditor business with zero risks.
In this example, everyone wins because the contingency agency needs the income and fights to gather the biggest amount of money possible in a aggressive fashion, whilst the creditor business collects debt they’d practically written off, never looking to note that cash again. It’s essential to success to outsource the debt collection process to a professional collection agency, but it’s vital to never prepay for a soft debt recovery agency to send letters.