Fast And Easy Ways A Debt Collection Agency Can Help Your Business

Image courtesy of cooldesign / Freedigitalphotos.net

An active debtor is a drain on your business and can severely cripple your company’s bottom line. By hiring a collection agency, you can get that money back working for you in a positive way. Here are some fast and easy ways a debt collection agency can help your business save money and stress.

Payment Methods

A debt collection agency can save you money directly because you only pay money from the debts collected. This is much more cost effective than keeping an in-house collection management department, and helps ensure that the debt is collected as quickly and easily as possible. To ensure satisfaction, if the debt collection agency cannot get your money back, you do not pay anything. When the debt is settled, a collection professional takes the fees out of the recovered money, saving you out-of-pocket expenses.

Time And Energy

The best way to excel is to stay focused on the progression of your business and make things happen. An active debtor can make moving forward difficult. By hiring a debt collection agency, you can save yourself the time and energy it takes to manage customer’s debts.  You are also likely to receive your money much sooner than if you were to do it yourself or hire an in-house debt management team.

You are also much less likely to receive a court summons when using a debt collection agency, which can be an additional drain on your time and bank account. A debt collection professional will avoid this as much as possible, by contacting the customer by phone. They also help you to retain customers after the debt is settled, by being as professional and courteous as possible.

One of the best and fastest ways to get your business back on track, and moving your focus back to the core elements of your company, is to hire a debt collection agency.

What are some of the biggest obstacles faced by businesses attempting to collect on debt?

Top Three Commercial Debt Collection Obstacles Facing Business Owners

Image courtesy of graur codrin / freedigitalphotos.net

Business revolves around credit.  It is good business strategy to extend credit to credit-worthy customers.  There are times when this “buy now, pay later” strategy backfires.  Sometimes a debtor cannot pay for the things purchased on credit.  You may not have any other option but to hire someone to collect the money that is owed to you.  It is not always as easy as it may seem to convince someone that he has to pay up.  There are a number of hurdles to cross before a collection agency can mark their account as “account received.”

1.       Excuses From The Debtor

Some debtors are truthful and relay their problem with temporary cash flow to the collection attorney.  Others, however, come up with every excuse under the sun.  Beginning with the often cited “the check is in the mail” to someone in their family died, even if that is not true, it is sometimes impossible for the collection lawyer to tell fact from fiction.

2.       Business Closing

When a business cannot sustain itself any longer, it will have to close.  This is usually at great cost to the owner and his creditors alike.  While this is unfortunate, better business practices would have prevented going into debt collection.

3.       Entering Bankruptcy

Once the debtor is in such dire financial straits that he must file for bankruptcy, all financial obligations are processed by the bankruptcy court.  A collection agency, or collection law firms, will have to turn toward the court to recover as much as possible of the owed debt.

It is usual practice to call a debtor first to remind them of their account in arrears.  A letter referring to debt collection would be the next step.  The last course would be to hire a collection attorney.  When all your efforts do not produce any satisfactory results, you may have to hire a collection law firm to recover your money.  Problems of this nature can often be avoided by a proactive business approach.  

What Is The Maximum Amount Of Time You Should Give Your Commercial Debtor Before Outsourcing To Collections?

Image courtesy of dougbelshaw / .flickr

There are many factors that affect the amount of time you should give your commercial debtor before outsourcing to collections, but the maximum amount of time is six months, and this time frame applies to large accounts or for those with whom you've had a long-term and positive relationship.  By the time the debt has remained unpaid for six months, you will have provided more than enough time for a business to come up with the means to pay off the debt.  For newer customers, or for businesses that have been slow to pay in the past, you shouldn't wait that long. 

Keeping in mind that the longer you wait, the harder it typically is to recover the debt, you might consider giving loyal customers a bit of a break before outsourcing their commercial account to collections.  This is especially true if the commercial debtor has been honest and forthright in communications or in attempting to pay the debt.  If the debtor has ignored your attempts to resolve the unpaid debt, or has promised payments and did not come through, you should consider speeding up the process of outsourcing to collections. 

If the commercial debtor has a large account and you have reasonable hope that the debt will be paid within six months, then you might want to hold off on legal collection procedures, or you will lose a portion of any amount of the debt that is recovered to fees.  However, if the lack of payment is affecting your ability to run your business because the amount of debt is so large, then you may want to speed up the process, as recovering even part of the debt as a result of collection efforts will be beneficial to you.  Your instincts, the debtor’s behavior, and the commercial debtor’s past payment history with you should influence the amount of time you wait before outsourcing to collections. 

Is Litigation Worth it? Rising Court Costs and the Decision of Collectors to Sue

The costs of litigation are rising but a lawsuit is still the debt collector’s strongest weapon against debtors who refuse to pay on their account.  Since the costs of litigation are the burden of the agency filing, it’s important to know just how much is too much when a creditor or collection agency is determining whether or not to file a lawsuit.  First, you have to ask the following questions concerning the collection account you’re considering for litigation:

1.       Is the claim large enough?

Many attorneys will not work with a collection case that is under$2,500.  Amounts under this amount will usually be more trouble than they are worth to litigate.

 

2.       If a commercial collection account, is the debtor still in business?

If you are collecting on a commercial account and the debtor has since closed his or her business, it’s highly likely that the assets have already been distributed.  Additionally, if the business was a sole proprietorship, you must serve the summons to the owner's primary place of business or residence, which could be difficult if the business has been closed.

  

3.       Does the debtor appear to have sufficient assets to satisfy a judgment if one is awarded?

In the business of collections, litigating a case in which a debtor doesn’t have sufficient assets to pay a judgment will likely be a waste of your valuable time and resources.  However, many creditors will still file a suit even in the absence of assets to satisfy it in order to “prove a point,” since the judgment will remain on the debtor’s record for 10 years.

 

4.       Will the court costs exceed 10% of the value of the claim? 

Generally, initial court costs should not exceed 10% of the value of the claim. If they do, in most cases, the collection account isn’t worth litigating.  

Agent or Attorney- Who Gets You More Money?

Image via ehow.com

So you have some debtors who refuse to pay up, huh? You’ve tried everything in your power to get them to take responsibility for their debts, but they are either unresponsive or they simply refuse to pay you a single cent of the loan they owe you. It’s become clear that if you want to restore cash flow from this debtor’s account, you will need to take decisive action and hire a collection professional to settle the matter for you.

But who should you hire- a collection agent, or an attorney?

For most people, the choice between an agent and an attorney revolves around which professional will get them more money from their debtors. And in just about every case, hiring an attorney is the more profitable choice to make.

Debtors love to ignore collection agents. Debtors understand that collection agents don’t actually have any power in and of themselves. Agents are just normal employees who work for collection companies and have no leverage over their debtors. Even more importantly, a collection agent can’t personally take a debtor to court or levy serious action against them. Instead, a collection agent can only harass a debtor with phone calls and letters.

These days debtors are experts at dodging or otherwise ignoring these annoying attempts at communication, rendering collection agents effectively powerless. If a collection agent wants to take any sort of serious action against a debtor, they will need to contact an attorney.

Only an attorney can provide a debtor with the real pressure they need to begin repayment. If your collection agency needs to hire an attorney to enforce their actions, then why not skip the middle-man and simply hire an attorney from the start? Not only will you save money, but communication from an attorney bears the weight you need to actually see positive action from your debtors. 

Do Debt Collectors REALLY Need to Follow Their Industry Regulations?

Image via entertainmentguide.local.com

You don’t need me to tell you the debt collection field is filled with unscrupulous individuals looking to make a quick buck by taking advantage of the desperation of both their clients and their debtors. Left to their own devices, most debt collectors would employ every thug tactic they could think of in order to get debtors to pay up. Thankfully the debt collection field is highly regulated and any law firm or agency looking to collect debts needs to comply with these laws to the letter if they want to stay in business.

The two primary sets of regulations relating to the debt collection field are the Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA). Let’s take a minute to outline what these acts state when it comes to how we can perform our duties.

The TCPA was primarily designed to rein in telemarketers, but it applies to debt collection agencies and firms as well. Under the TCPA, no debt collection professional is allowed to do the following actions:

• Call between 9 p.m. and 8 a.m. local time
• Call individuals on the Do Not Call list
• Refuse to provide their agency’s identifying information
• Solicit using automated messages
• Engage more than 2 lines of a business with automated calls

Each instance of breaking one of these regulations can result in a fine of $500 - $1,500 a piece, making the TCPA costly to violate!

The FDCPA works in much the same way, but isn’t limited exclusively to regulating telephone calls. Under the FDCPA, debt collectors can’t misrepresent themselves, their intentions, or their capabilities. The FDCPA also prevents collectors from being able to embarrass or harass their debtors through a variety of once-common practices.

For legal, financial, and ethical reasons, it’s wise to ONLY work with debt collectors who follow these regulations as closely as possible!

Even More Reasons to Work with a Responsible Collection Firm

Image via pegasusnews.com

There are plenty of reasons why choosing to work with a responsible collection firm is a wise decision. Not only are responsible collection tactics less distasteful than the “thug tactics” employed by many collection agencies, but relatively respectful collection tactics are more likely to produce favorable outcomes with your debtors as well. There’s a third, even more important and even more practical reason to choose a collection agency that does NOT utilize inappropriate tactics- there are laws against the most common debt collection harassment tactics.

At a very base level a collection professional needs to be polite and respectful to the debtors they speak with. Collection agents aren’t allowed to bully or otherwise act in an excessively rude manner to the debtors on their lists. While a collection professional isn’t likely to be reported if they speak in a manner a debtor considers “rude” or “disrespectful,”such a manner will hurt your case if your debtor’s account goes to court.

One of the most common forms of harassing behavior utilized by debt collectors is a continuous string of phone calls at inappropriate times. Now, there’s nothing wrong, illegal or immoral about calling a debtor about the money they owe. But legally speaking a collection agent can only make these calls during a range of hours that have been clearly defined according to state and federal law. The laws dictating when a collection agency can call a debtor differ from state to state, and if an agent repeatedly makes calls during prohibited hours they can be sued for harassment.

Harassing behavior does more than simply lower the chances you will collect from your debtors- it gives your debtors legal ammunition to use against you. 

The Proven Formula for Locating Debtors

Image via Findany1anywhere.com

Lenders are constantly faced with the unfortunate reality that plenty of their debtors will attempt to go off the grid to avoid the responsibility of paying back their loan. While many lenders have procedures in place for collecting from debtors who are easy to find and contact, most lenders find themselves powerless to track down and elicit payments from debtors who have skipped town. Yet just because a case is difficult for a lending agency doesn’t mean it’s impossible for a professional collections agency.

Debt collection agencies and debt buyers develop proven formulas for finding skipped debtors. This process is referred to as “skip tracing” and it employs many of the same methodologies as private investigators and other professionals use to locate any missing person.

One of the most important skip tracing actions involves contacting and putting an acceptable amount of pressure on the debtor’s contacts. Speaking with all listed employers, all institutions and organizations the debtor is associated with, and contacting any references the debtor listed on their loan application often bears fruit. Even if these connections fail to offer assistance they will often offer up the name and contact information of other leads who may provide access to the missing debtor. The key to receiving useful information from a debtor’s connections and their leads lies in communicating with them in the right manner. E-mail and phone calls are easy to dismiss and to ignore, but in person meetings and attempts at making contact are more likely to result in open and honest communication.

The skip tracing formula will vary from debtor to debtor, but ultimately there are a few key principles which never vary.

Time-Barred Debts: Debts with Expired Statue of Limitations

There are plenty of debts out there which are known as "Time-Barred." To put it simply, a Time-Barred debt is a debt which is too old to be collected through a normal court process. That means the debt's owner doesn't have to worry about legal action being filed against them from their creditors or from collectors hired to acquire their debt. While it's not impossible to collect on a time-barred debt, it is highly unlikely you will be able to do so. After all, without the threat of legal action there's a slim chance of a debtor complying with a collector's wishes. 

Image via Hypervocal.com

What constitutes a Time-Barred debt, and the length of time needed to pass before a debt's statute of limitations expires, varies from state to state. For some states a debt might become Time-Barred within 3 years of it being owed. For other states the statute of limitations on a debt might not run out for at least a decade. To find out whether a debt is Time-Barred or not you need to learn the law of your state. You can also call the office of your state's Attorney General to find out when a debt becomes, essentially, uncollectable.

These laws not only protect a debtor from legal action, they also protect debtors from overly aggressive collectors looking to acquire payments off of the expired debt. If a debtor has been harassed or aggressively pursued by a debt collector over a Time-Barred debt then that debtor is legally able to sue the collector or the creditor itself. If you are a creditor then you likely don't want to be taken to court over a debt you can't collect on, and you likewise don't want to expose your creditor clients to legal processes due to your behavior. So while Time-Barred debts can technically be paid back, they often aren't worth pursuing.