Understanding the Entire Debt Collection Process
Open lines of credit are a vital piece of the American economy. For the individual, credit cards and lines of credit allow them to make big purchases or luxury purchases they don’t have the cash on hand for but can afford to pay off over time. For businesses, credit allows them to reinvest in themselves in an effort to improve their products and services and increase future profits. Unfortunately it can become all too easy for individuals to fall behind on debt repayment, which hurts the borrower and the creditor equally. However, by getting to know the debt collection process those on both sides of debt can feel more comfortable with the process and avoid stress and tension.
The debt collection process works differently depending upon how the creditor sets up their debt collection. There are three typical forms of collection agencies involved in the debt collection process. Some businesses set up a collection agency within their own business. The other two models for collection involve another party and include:
- Third party debt collection agency
- Debt collection purchase agency
When a commercial debt becomes too large for a company to ignore and the debtor has made no payments, the time has come to turn the case over to a debt collection agency. It is very important for your company to ensure that the collection agency you choose to deal with is reputable because they will be the face of your company dealing directly with your clients. Many debt collection agencies will follow a process that includes some of the following steps:
- Client provides debt collection agency with information on the account in debt along with supporting documentation
- Agency reviews the claim and supporting date before proceeding with collection
- Initial contact with debtor is made through a letter that is faxed, mailed, or email to the debtor
- Phone contact is made with debtor
- Debt collection agency attempts to secure payment, clear up issues, and establish clear debt resolution plan
From here the debt collection process can take two paths. If the agency can successfully arrange for resolution of debt between the debtor and client than the company continues to work to ensure that the agreed upon payments materialize for the client.
If however, the debtor does not cooperate than the agency and the client make arrangements for a lawsuit. The client must authorize the step toward filing a lawsuit, at which point the agency will hand off the case to lawyers in the debtor’s region. The lawyers will investigate the claim for 60 days and make a recommendation on litigation to the client.
Should a client choose not to authorize the filing of a lawsuit, the debt collection agency will work on resolving the case for another 60 days before closing the file.
This process does not represent the steps taken by all debt collection agencies, but instead is intended to provide potential clients with an idea of the typical debt collection process. Although it may seem lengthy and difficult, the debt collection process can be made easier by working with a debt collection agency. The majority of debt collectors are well informed of all federal and state laws that govern their industry and are adept at working within those boundaries to successfully resolve debt situations between creditors and debtors.