A debt collection agency is a third party debt collection service provider. For most small businesses, using an external collection agency is like a last resort against bad debts.
Why is this important? Well, in 2010 alone, debt collection agencies in the United States were able to collect over $ 40 billion in debt. And, the Federal Reserve Bank of New York reports that about 30 million Americans have at least one debt in collection.
Learn more about collection agencies and how they can work with small businesses below:
What is a debt collection agency?
As Gary Davis, director of Fidelity Creditor Service said, âCredit is the backbone of our economy. Businesses and consumers rely on credit to functionâ¦ And, whatever the current economic conditions, the role of a collection agency is to protect the rights of creditors.
In other words, Debt collection agencies are third party service providers who are hired by creditors to collect overdue debts from debtors.
The following are examples of small businesses or individuals who may require the services of a debt collector:
- The owners
- Ambulance companies
- Online merchants
And more! Collection agencies also collect different types of debt: medical debt, student loan debt, utility debt, car loan debt, personal loan debt, etc.
How does debt collection work?
The job of a debt collector, when hired, is to compile information about debtors and use that information to work on behalf of the creditor to collect debts – usually by contacting debtors by email or by appeals, but also occasionally through litigation.
When it comes to costs, most collection agencies work on a contingency agreement, which means they receive a portion of the amount they recover for their clients.
These types of agencies are called full service debt collectors. An example of this is Loyalty creditors service. which offers a real one-stop shop for everything related to debt collection. This includes an in-house lawyer to obtain court orders, in-house private investigators to track down debtors, and trained agents who are strategically persuasive but still professional when communicating with debtors.
To offer an alternative, there are also some collection agencies that offer their services to a flat rate. In this case, the creditor keeps 100% of the debt collected, but it must pay the agency at an agreed rate (whether or not it is successful in collecting the debt) for its services rendered.
The pros and cons of hiring a debt collection agency
With a successful debt collection agency by your side, you won’t have to worry about settling a bad debt. Debt collectors, like Faithful Creditors Service, will do all the work, including:
- Gather information and build relationships with debtors
- Persuade debtors that he is in their best interest to pay off debt
- Development of a payment plan with debtors so that they can pay their account
- Establish open lines of communication with debtors (via SMS, emails, calls, etc.) to help them honor their liability
- And even, occasionally, drop necessary lawsuits to settle accounts in court.
The only potential risk of hiring a collection agency is to Debt recovery himself. That is, many small businesses fear that by using a third-party agency to collect their debts for them, they could destroy their relationship with their customers.
This can be detrimental to small businesses that rely on loyal customers or word of mouth to spread their services. But, really, as long as you are working with a reliable agency that knows how to communicate successfully with debtors, that shouldn’t be a problem.
Conclusion: what is a debt collection agency?
Debt collection agencies like Fidelity Creditor Service are there to help businesses large and small by gently luring their clients to honor their debt. Usually, they protect creditors from bad debts and reassure them in times of financial distress.
Of course, as with any other service, it are certain risks involved in hiring a debt collector. However, as long as you choose an agency carefully (perhaps one with a long history of service), you should be able to reap the benefits of their services with very little risk to you or your business.