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Get the Answers to Your Questions Regarding Collection Agencies

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How does an agency initiate contact with the debtor?

The collector begins the process with a standard letter to the debtor detailing the situation and the amount owed. The letter explains that the debtor is late, how much money is owed, and how the debt can be settled quickly and problem-free. From there, the debtor must respond in order to work out a payment arrangement or dispute the amount owed. If the collection agency is unsuccessful, they can send the matter over to a court to take further action.

If the collector and debtor reach an agreement, the collection agency must provide the debtor with another written letter that explains what the settlement amount is and the payment terms. This letter also serves a dual purpose – it proves how much your business gets and protects the debtor with an official receipt that the debt was paid.

Why can't I just go after the money myself?

You shouldn't underestimate how much time and effort goes into pursuing a single delinquent account let alone several accounts! You have to track down the debtor, make phone calls, send letters, follow up on the progress, and if all that fails, file a lawsuit. It's quite taxing and takes you away from more productive business tasks.

While it's tempting to do it yourself to avoid paying the collection agency's fee, consider the valuable time you save by not having to concentrate on retrieving previously earned funds.

How does a collection agency make their money?

Collectors go after the debtors, make arrangements to get as much of the money owed as possible, and then keep a percentage of those recovered funds. The percentage can range from 10% to 50% depending on the age of the debt, the difficulty of finding the debtors, and how much time was spent on collecting. Learn more about the costs of collection agency services.

Will a collection agent help with consumer debt?

Unfortunately, our vendors only work with businesses looking to recover past-due debts from business clients; they won't accept consumer collection requests or payments related to court settlements. If you're looking for that type of service, search the Internet or look in a phone directory.

Do I have to sign a long-term agreement?

Most collection agencies will work on a case-by-case basis where you can use them once and don't have further obligation to them. If you feel you will need collection services frequently and can't afford to hire one to work in-house, a collection agency may be able to give you a discounted rate if you agree to a longer-term arrangement.

Aren't collection agencies overly aggressive?

Collection agencies need to be direct and firm in order to get a delinquent account paid. But the days of the gruff collector that warns debtors to "pay…or else!" are long gone. Collection agencies are far more professional and must adhere to specific steps when going after past-due accounts. In addition, the Fair Debt Collection Practices Act (FDCPA) forbids collectors from threatening and harassing debtors. Violating the FDCPA could cost an agency their license and bring up formal charges.

We cover more about the often-misleading public perception of this business when discussing the misconceptions of collection agencies.