How collection agencies work
For larger debts, collection agencies typically send letters and make phone calls to the delinquent account. Smaller debts may not justify the cost of phone calls, limiting the collection companies to simply sending collection letters.
As a last resort, most collection agencies will shift your bad debt recovery efforts from a collection effort, where they simply try to convince the debtor to pay, to a legal one, where a court can settle the disputed debt.
To some people, collection companies have a reputation for using bullying tactics and intimidation to recover debts. However, this reputation is outdated and undeserved. Collection agencies must comply with numerous state and federal statutes such as the Fair Debt Collection Practices Act (FDCPA), the Federal Trade Commission Act, and the Fair Credit Reporting Act (FCRA), which all require debt collectors to treat debtors fairly and prohibit certain methods of debt collection, including threats and harassment.
In addition, reputable agencies find that by working with debtors and providing help with payment plans or other settlement options enables them to recover a larger percentage of money for their clients.
It's important to note that if your collection agency does not comply with regulations concerning the treatment of debtors, you could be held liable for their behavior in a lawsuit. This is why it is vitally important for you to carefully evaluate each agency you are considering hiring.
When is it time to turn to a collection company?
You can send past due accounts to your collection company as soon as you decide it is unlikely they are going to pay you. This can be as soon as 30 days after payment is due or up to a year or more, although the newer the debt is the more likely that the agency will succeed in recovering the funds. Once you transfer an account to your agency, the firm will handle all the communication and settlement details for that account.
Here are some indicators of when you should turn an account over to a collection firm:
- Your customer makes repeated, groundless complaints to try to get out of payment.
- The customer flatly denies owing you any payment, despite your records.
- The customer doesn't respond to your final notices and attempts to create payment plans.
- A customer changes his or her address or phone number without leaving forwarding information.