How past due should be your customer before you decide to turn over to a third party collection agency and law firm?

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The first tier of collection is with first party agencies that are subsidiaries of the company itself, these are from 1 – 30 days past due. Second tier is 31- 60 days past due, this tier, it depends upon the company if they still want the first-party to continue collecting or if they will pass it on to the third-party collections agency. 

Banks, firms or credit card companies resort to third party collections once the account reaches 90 days to 180 days delinquent. Each country and state has their own rules and regulations regarding collection agencies and their practices which are quite often very aggressive.

 

Third party collection agencies, will try to trace the customer and ensure full settlement of outstanding. If the customer is unable to settle the outstanding, the collector will ensure that a settlement plan or a discount strategy – as agreed by the company and the collection agency- is offered to the customers. 

The advantage of first party collection is there is no lag in time between an account becoming delinquent and the beginning of the collections process. Another is you have knowledge of your customers needs and practices, making the client-customer relationship positive even if the later incurred a debt, which helps down the road to keep the customer loyal to the company. Third party collections can sometimes be seen as hostile, however if your clients need your product or service to keep his or her business running smoothly, they will strive to stay on your good side. Sometimes if the customer just hears a familiar voice asking nicely for a payment is enough to keep the problem solved. 

Many times the third party agency or law firm will have settlement authority from the client to settle for far less than the original balance. Now after 180 days and the account’s still in collections it is advisable to have the account transferred to third party agencies or law firms. 

Third party agency or law firm are subjected to Fair Debt Collection Practices Act of 1977 (FDCPA). This law is administered by the Federal Trade Commission (FTC), this federal law limits the hours of collection agency or law firm to call the customers and prohibits communication of the debt to a third party. It also prohibits false or misleading representation and making threats of actions the agency cannot lawfully or does not intend to take.