When creditor businesses elect to outsource their debt collection to a commercial collection agency, they need to make a smart decision because not absolutely all agencies will be the same. A first-party collection agency is usually a subsidiary of the first creditor, while third-party agencies operate by either buying debt at a discounted 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 before services rendered or may focus on 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, 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 his or her financial status so they’re better in a position to assess repayment situations. Also, debtors often drag the name of the recovery agency through the mud.
If your company were to collect debts which consists of own subsidiary agency, then your brand too would get impacted by the bad publicity. Then, there are a special group of debt collection skills required – no business can acquire these specialized skills by simply creating a debt collection department debt collection agency near me. 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 cases, collection agencies provide what is called pre-collection or soft collection services, this means sending some letters to the debtor that 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 ahead of time and send the letters at regular intervals.
The situation lies in that debtors simply throw these letters out, aware of the meaning. If the debtor has already been in default, odds are he or she doesn’t have a clean 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 buy time, realizing that the letters will be sent but no action will be used to accompany those letters. This leads to big delays in the collection process.
3. Mailing the letters is a minimal expense for soft collection agencies because they have 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 have 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. Actually, they’re conscious that sooner or later along the way, the creditor will become impatient and require 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 is actually collected. This leaves the creditor business with zero risks.
In this situation, everyone wins as the contingency agency needs the income and fights to collect the largest amount of money possible in an aggressive fashion, as the creditor business collects debt they had practically written off, never looking to note that cash again. It’s essential to success to outsource the debt collection process to a commercial collection agency, but it is imperative to never prepay for a smooth debt recovery agency to send letters.