Understanding the debt collecting process

Written by: Pam Gaulin

Debt collecting can be overwhelming for the small business owner who focuses on providing services or selling products to customers. The business owner can outsource this daunting task to professionals who are trained in acquiring money on past due accounts.

Since debt collecting is their primary business focus, they have specific processes and procedures in place and have already figured out what works and what doesn't. If you own or operate a business, you can benefit from their experience and knowledge by working with a debt collection agency to recover money that your company is owed.

Debt collecting process

Once you've submitted a request for price quotes and compared different debt collection agencies, you’ll be able to start the collection process on any delinquent client within hours of the account becoming past due. Acting fast is in your best interest and increases the chances the overdue bills will get paid.

You forward a collection claim to the agency you’re working with who will then contact the debtor, typically within 24 hours of receiving the claim. This fast and initial call can serve as an effective reminder for the customer that they need to make payment on a bill.

After the initial contact, the debt collector mails out a letter informing the debtor that they are the commissioned collection agency for your company. If the debt remains unpaid, a series of follow-up collection letters is sent out. The number of letters and the frequency of letters vary with each agency and type of debt. If the debtor disputes the claim, he must forward a written letter with reasons why they are refusing to send payment within 30 days of the initial request.

Collection phone calls will begin after the initial letter is mailed out. The agency will attempt to collect the full amount of the debt and make payment arrangements with the debtor. Offering multiple payment solutions can improve the likelihood that a non-resistant debtor will pay. Be sure to ask the agency which forms of payment they accept.

If the debtor can’t make full payment on a past due bill, the debt collector will attempt to have the debtor commit to a payment date. The agency will then follow up with the business on any progress made on the account.

The agency may also offer a settlement at a lesser amount than the amount due but only after initial attempts to retrieve the funds fail. This is a tactic collection services use as a last ditch attempt to recover at least some money from the debtor who seems resistant or uncooperative or simply can’t afford to make good on the due amount.

Potential court action

If these steps fail, the final approach would be litigation. Some agencies offer this service, but only when all other attempts at collecting the money have been unsuccessful. While it is within a debt collector's rights to escalate the collection attempts to this level, the collector can’t make threats about legal action unless they actually plan to do so. As required by law, collection agencies are prohibited from using false statements while attempting to collect a debt.

The debt collection agency may also report the debtor to a credit-reporting agency. The collector can report the debtor to all three credit reporting agencies provided:

1. The customer hasn’t disputed the debt within the first 30 days of receiving the notice
2. Any disputed debt has been validated as an accurate debt with the original bill issuer

Keep in mind the original lender or business may have already reported the overdue debt to a credit agency before it ever reaches a debt collector. Since all payment history on loans and credit cards, including unpaid bills, can appear on a credit report, you want the collector to check if this has been previously reported so they don’t waste their time.

Skip tracing: a smart business move

In some situations, the collector won’t be able to locate the debtor. Either phone numbers get disconnected or changed without notice, addresses change, or collection letters get returned when the post office doesn’t have a forwarding address available. When this happens, your collection agency may provide skip trace services to locate and contact delinquent and seemingly unreachable clients.

Skip tracing involves using known contact information about the debtor, including previous addresses, phone numbers, and past and present employers, to try to find current contact information for debtor. When comparing different agencies, you may want to choose one that offers skip trace services to help ensure you take all steps to retrieve the money you’re owed.

Get matched with multiple collection agencies in your area – submit your free request for collection service price quotes now.