Debt collection agency

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Helene Mueller
eCollect support team

A debt collection agency offers companies and individuals professional help in collecting outstanding receivables and amounts due to be paid. Such businesses target outstanding payments, bad debts, overdue invoices, etc. Their attempt to collect is deliberate in order to obtain the amount past due. As debts become a larger problem in many countries due to failed payments and transactions, the debt collection agency role is vital.


DCA and DEA: regulated rights

Debt collection agencies and Debt Enforcement agencies are strictly regulated by law and possess certain authorities, which stand as legal rights. A typical debt collection agent is allowed to send reminders in any form. The enforcement agent has the legal right to confiscate the debtor’s goods and belongings and sell them in order to settle and pay the bad debt. An enforcement agent is not allowed to collect regulated debts. This is something the debt collection agent does. If he fails in collecting the bad debt during the pre-legal actions and legal actions take place, then it comes to the enforcement agent. The enforcement agent can send the debtor a notice for enforcement. If the subject still refuses to pay, the same agent has the legal right to visit the property and make a list of the debtor’s belongings, then apply court actions and seize the moveable property.

Both the DCA and the DEA require a fee to be paid depending on the size of the debt which the debtor may or may not be obliged to pay (Here it depends on the country. In GSA, for example, this fee is regulated by law and the debtor is lawfully obliged to pay it along with the debt amount).

Standard practices & collection methods

The collection agencies are highly motivated to convince the subject to pay, trying to avoid legal actions as this is another cost for the first party. However, the practices are not random and are strictly regulated by country’s laws along with the debt recovery agency’s commission percentage. Such are:

  • Contacting the debtor directly:

    • By phone calls, text messages, voicemails;
    • By email- constant reminders. The reminders are also strictly regulated. In the UK, for example, they are as following: friendly reminder, formal reminder, harsh reminder, court warning. Each has to be sent seven days after the previous one.
    • By social networks like Facebook or LinkedIn;
    • Letters sent by post.

For international debt collection, the practices are the same. However, it is a separate, specialised field. To offer international services, the agency must obtain a licence to operate in a specific country, provide a local partner and a lawyer for the specific country, must have detailed knowledge of the laws and the legal systems. Furthermore, a polylingual call centre is required in order to serve clients in different languages.

A debt collection agency utilises different collection methods and also includes action, monitoring and identification. The collection should be made legally and without damaging the relationship between the first party (creditor) and the second party (debtor). Certain collection methods used by debt collection agencies are to be useful and fair, such as phone collection- if it is viable to phone; b/n 8am-9pm local time; email reminders; standard letter by post collection; personal visits; official invoices addressed to credit control; invoice reminders; contacting a fourth-party entity with no connection to the debt, e.g. a neighbour, co-worker, etc. in order to locate the debtor. The so-called “soft collection”, co-operation with a debt enforcement agent or by a solicitor in debtor’s property, e.g. the so-called “litigation”, legal actions when the pre-legal are not successful, etc.

Limitation period of bad debt

The limitation period is the period within which a party bound by a contract must settle a claim or in the bad debt’s case- pay an amount due. A standard case in B2B relationships is when the invoice is due within the next 30 days (excluding weekends and official bank holidays). Payment methods vary: the second party can provide the total amount paying cash, by cheque, credit card, direct debit, bank transfer, PayPal, electronic bill payment, also known as EBPP, etc. After the period expires, the second party becomes a debtor and the payment transforms into a past due. Usually, the first party, the creditor, hires a debt collection agency (the third party), which is the usual venue for collecting outstanding amounts and bad debts. According to law the debt collection agency serving the first party (the creditor) must send reminders and past-due notices to the debtor in order to collect the amount due to be paid.


Used literature & external links

http://www.stepchange.org/Debtinformationandadvice/Whatyourcreditorscando/Courtaction/EnglandWalescourtaction/Bailiffs.aspx
 

http://en.wikipedia.org/wiki/Collection_agency#Collection_practices
 

http://www.financial-ombudsman.org.uk/publications/technical_notes/debtcollecting-note.html
 

http://www.inc.com/encyclopedia/debt-collection.html
 

http://www.out-law.com/
 

http://www.law.cornell.edu/uscode/text/28/part-VI/chapter-176
 

http://www.crfonline.org/orc/cro/cro-5.html