It’s no secret that the biggest challenge for most businesses is dealing with late payments. Your company may suffer serious cash flow problems due to late payments. It may also be among the 82 percent of businesses that fail due to cash flow issues.
Fortunately, you can reduce late payments with help from debt collection agencies. The debt collector will help you identify accounts headed for collection. They will also communicate with non-paying clients and help improve their relationship with your business.
Knowing how and when to hire a debt collection agency can help make your business profitable. It may be a good idea to recruit one if you don’t have the personnel, money, and time to follow up on late payments. Here’s everything you should know about debt collection companies.
How Do Debt Collection Agencies Work?
Debt collection agencies specialize in different types of debts. For instance, a debt collector may only specialize in gym, health club, and fitness center membership bills.
Reputable debt collectors limit their work to the statute of limitations depending on the state. In this case, they can legally pursue a debt if it’s not too old (within the statute of limitations).
The commission paid to the collector depends on the amount collected. They may take 25 to 50 percent of the amount owed if they successfully recover it.
For debts that are difficult to collect, the collection agency may negotiate a settlement with the consumer. The settlement is usually less than the amount owed to make it easier to repay. Collectors may also file lawsuits against customers who default with the help of a lawyer.
What They Do
Debt collection companies contact delinquent borrowers through phone calls and letters. They try to convince the debtor to repay the debt. If they can’t reach the borrower with the information you provide them, they may use private investigators and computer software.
As part of their work, collectors search for assets belonging to borrowers to assess their ability to repay. These assets include brokerage and bank accounts.
Collectors are obliged by the law to report defaulted debts to credit bureaus to encourage repayments. Though this action can damage the borrower’s credit score, it prevents them from accumulating more unpaid debts.
Debt collection companies have to count on debtors to repay the amount owed. The law prohibits them from reaching into the debtor’s bank account or seizing their paycheck. They can only use forceful methods to recover the money if a court permits them.
Which Laws Govern Their Operations?
The US Fair Debt Collection Practices Act protects consumers from deceptive, unfair, and abusive debt collection practices. Consumers can seek up to $1,000 in actual damages and statutory damages if the collector fails to adhere to this FTC-enforced law. The act mandates collectors to send delinquent customers written notice of the debt, the company owed, and ways to repay.
Debt collection companies must stick to various time limits in their work. For instance, they shouldn’t report any debt that’s over seven years old. It’s also illegal for them to send debt validation letters within five days of contacting the delinquent customer.
A debt collector should obtain complete and accurate records to avoid pursuing the wrong people. They shouldn’t sue consumers for debts beyond the statute of limitations. Any case of threats, harassment, or discrimination is also punishable by the law.
Do They Buy Debt?
If a late payment may seem difficult to collect, your company may cut losses by selling the debt to a debt buyer. You may even package several debt accounts together and sell them to the buyer as a group.
Debt buyers only buy relatively new debts that don’t have any collection activity. They can also buy old accounts that debt collectors failed to collect through a bidding process. Either way, older debts will cost less since they are less likely to be collected.
The debt buyer will then collect the default payments on their own or through the help of a collector. They may also resell portions of the debt to make a profit.
When to Hire a Debt Collection Agency
Debt collection companies adapt to the needs of businesses and debtors they work with. Their debt recovery help may cover different payment channels, payment plans, and legal options for defaulters. They can help your company if you don’t have the right systems to collect overdue debts effectively.
For instance, if your gym or fitness center is experiencing cash flow problems due to late payments, a collector can help. They’ll help you recover the revenue needed for your facility to stay in business.
Consider hiring a debt collection agency if you lack personnel and time to recover delinquencies. A collector will also come in handy when your company has a high volume of delinquencies, or you lack the knowledge to handle them. Low balances in your receivables may also make it mandatory for you to hire the agency.
Debt Collection Considerations
It’s wise to document and update debts and late payments for them to be collected efficiently. The debt collection company will expect you to provide invoices and contracts to prove that you are owed money.
Don’t wait until you have a high volume of delinquencies to hire a collector. You’ll need the money to pay suppliers and employees’ salaries and invest in your business. Furthermore, when you start the collection on time, it increases the odds of success.
Work with a debt collection agency in the same country or state as the debtor. The agency will have a deeper understanding of local state laws to help you recover the amount owed.
Hire a Debt Collection Agency Today
Working with debt collection agencies may help you recover your company’s lost income from late payments or bad debts. Hire the agency within 120 days when a late payment is due. The collector will help you cut expenses accrued when collecting debt on your own.
Count on FFCC for higher rates of debt recovery and transparent collection processes. Our flexible and talented debt recovery specialties will make you feel confident about their help. We invite you to become an FFCC client today to enjoy our wide range of services.