What is the Role of a Collection Agency in Debt Recovery?
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A collection agency is a third party collector hired by creditors to recover their debts.  The collection agency can include the original creditor who collects debts using a different name.  Collection agencies can also include companies with the sole purpose of debt purchase and collection.


Collection Agencies as Last Resort

Many financial institutions, credit card companies and private individuals will turn to collection agencies when they fail to collect their own debts.  Creditors usually send out demand letters, make phone calls and attempt all forms of communication in recovering debt.  If debtors do not respond after a series of letters or calls within a few months, creditors have the option of sending the overdue account to a collection agency.  The other alternative will mean writing off the account as a bad debt.  Creditors would rather hire a third-party collector to recover the money owed to them.


Methods of Debt Collection

If the debtor continues to ignore the phone calls and letters of creditors, and has made no attempt in setting up a repayment scheme, the creditors will have no choice but to turn over the account to a collection agency.  The creditors will also file a delinquency report to the credit bureau for future reference.  Creditors usually do this when the debtor has not made any contact after four to six months.

Collection agencies will work with creditors to obtain the necessary information before seeking out the debtor.  Creditors have access to a computer database made available by credit bureaus.  The information from the database can be used to find debtors even if they have moved away from their original location.  Debtors may have unknowingly provided vital information such as a new credit card application or data regarding rent in a new place.

Bill collecting is a serious business.  Collection agents take their jobs seriously.  They will begin tracking the debtor once the overdue account is passed on to their agencies.  Professional debt collectors know the importance of striking early to increase their chances of collecting the debt.  Before a collection agency goes after a debtor, collection agents evaluate their chances of success.  The agency may have hundreds of delinquent accounts.  They have to prioritize those accounts with the highest likelihood of collection.

A collection agency will keep a percentage of the total debt once successfully collected.  Hiring collection agencies can be more expensive when the debtor’s account is old. The longer the debt has been outstanding, the more difficult it can be to collect (as there is greater likelihood that the debtor has gone out of business or moved).

Some collection agencies charge per phone call or letter.  When high fees are involved, the collection agents are usually extemely motivated in their tracking and collecting efforts.

Collection agencies will begin tracking debtors using every possible resource.  They have clerks that work by sifting through a mountain of information to retrieve the information needed by agents.  They can get information from credit applications made in the last few months.  This includes information provided by creditors.  Collection agents will contact friends and family to determine the location of the debtor.  They do not identify themselves as debt collectors to avoid getting misleading information.  The methods of debt recovery for collection agencies vary according to the type of debt and the willingness of creditors to pay.

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