Debt Recovery

By law, all debt collection calls initiated by a collection agency must be recorded and preserved for three years after the call date. The primary objective is to check if there was a violation of debt collection laws (FDCPA laws), and those recordings can be reviewed if needed. 

Say you are a collection agency, and your client (the original creditor) contacts you to say that they have received a complaint from the debtor saying that your debt collector was rude over the phone or felt threatened. Such complaints from debtors can get your client to worry about their reputation. The client may demand that they want to hear the recording of that collection call. The question arises: Is it okay to share that call recording with your client? 

In short: In our opinion, a collection agency should avoid sharing debt collection call recordings with their clients for the following reasons.

• This can sometimes become a regular habit for some clients.
• Sharing collection calls with clients may result in privacy/compliance issues. Please explain this to your client, and they will get it. Assure them that you will personally hear that call recording along with your compliance officer and check if indeed there was any violation. Once you hear that recording, you can transcribe it to your client. 
• You can also update your client on the collection activity made by your agency so far. This includes if the debtor was skip traced and how often you attempted to reach the debtor.
• If your client insists they want to see collector notes on the online portal to understand how much collection activity is happening in each of their accounts, that is tricky too. Sharing collection notes is usually useless because most debt collectors use short-hand and ambiguous words, which are nearly impossible to understand for average users. These notes can easily be misinterpreted. Convey them that your debt collectors do not get paid unless they collect money on client accounts, so clients should be assured that your collectors are attempting to recover the debt in the best possible manner.

Sharing your internal collection recordings or notes can cause inconvenience to you and raise other unforeseen complications.

However, if your client occasionally wants to know the status of a particular debt, do honor their request. Check with your collections team, and transcribe it for them. 

It is fair to assume that 99% of the time, a debtor feels pressured due to the firm nature of collection calls, and there may not be any violation or threats involved, as claimed by your debtor.

But corrective steps should be taken if there is a mistake on the debt collector’s behalf. Tell your client about the incident, and convey to them that appropriate steps have been implemented so that such an incident does not happen again.

Although the best strategy to assign your accounts for collections is when they are 60-90 days past due, regardless of the time of year; however, December has several additional advantages.

This is because of 2 reasons.

1. Clients who use the flat fee service can claim the cost as a business expense in taxes.

2. Many debtors receive tax refunds in the next few months, and they will likely prioritize that money paying off their debt, especially if a collection agency is involved.

Nearly all collection agencies see better than average collection rates during the year’s first quarter.

An average collection agency will recover about 20% of the total debt assigned. Some clients may get a 100% recovery rate, for others it could very well be 0%. Here are the most important factors which decide how much a collection agency will collect for you:

1. Collection Agency itself:

A collection agency that follows a friendly approach makes persistent contacts, follows legally complaint tactics, yet a firm approach will recover maximum money. They must know how to recover the debt diplomatically instead of forcefully. Debtors are less likely to pay when they feel threatened.

Since all collection calls are recorded, it is important for the management/supervisor to randomly examine at least a few collection calls daily and discuss shortcomings with their debt collectors. They must have at least a few bilingual debt collectors in order to recover from people who prefer talking only in Spanish. Their debt collectors must be located in multiple time zones in order to work with debtors nationwide.

2. Is your debt primarily Commercial (B2B) or Consumer (B2C)

Commercial debts have a recovery rate of around 75% on viable accounts. For consumer debts, this figure drops to approximately 12%. Factoring in both types of debts, the average recovery rate is about 20%.

3. Age of your debts

Accounts that are assigned around 90 days have an excellent recovery rate, while accounts that are older than one year have a poor recovery rate.

4. Your Industry

Commercial Debts: Nearly 75% recovery rate on viable debts.

These industries have a higher recovery rate: (Over 40%)
College/Universities/ Prof. School, Fuel/Oil/Propane, Printing, Lawn & Garden, Snow Removal, Business Services, Plumbing, Heating, Air, Engineering, Interior Design, Restoration, Publishing and Credit Unions.

These industries have a moderate recovery rate: ( 25%-40%)
Pest Control, Aviation, Media, Industrial, Optometrists, Dental, Personal Services, Funeral services, Repairs, Waste Management, Day Care, CPA / Accountants, Utilities, Government, Member Organizations, Farm Supply, Auto Dealers, Cleaning Service, Fire, Education Schools Misc., Telephone Communications, Elementary/ High School and Medical.

These industries have an average recovery rate ( 15% -25%)
Social Services Misc., Trucking, Veterinarian, Clothing, Manufacturing, Computer Services, Pharmaceutical, Medical supply, Drug Store, Newspaper, Rentals Equipment, Wholesale, Durable, Hotel, Non-Profit and Insurance.

These industries have a lower recovery rate: ( Below 15%)
Chiropractor, Nursing Homes, Banks, Bail Bonds, Property Management, Financial, Legal Services / Lawyers, Gym/Sports Organizations, Electronics, Moving/storage and Real Estate Agents.

5. Quality of your own debt:

If you primarily serve a lower income group, or if your state debt laws are favorable for debtors, then the recovery rate will be lower. Additionally, if your debt is too old then your recovery will decrease.

 

The best time to assign an account to a collection agency is when the debt is around 90 days past due.

Why 90 days?

• You have given your debtor at least three billing cycles to pay the bill and resolve any billing disputes that may have occurred.
• At 90 days, your efforts have been exhausted, and the account is clearly in the default territory. Your staff is spending more time and energy on reminding newer accounts that are around 30-60 days past due. 
• Paying your bill is clearly not a priority in your debtor’s mind by now. ( or your patient’s mind, in case of medical debts). Chances of recovering money are dropping every day. A collection agency typically recovers 75% of your money when the account is assigned at 90 days.
• Your internal staff is no match for a professional debt collector’s persistence and collection tactics. Your accounting department is unaware of collection laws that constantly change.
• You can write off collection costs as business expenses in your taxes.
• Quite likely your debtor likely has several other unpaid bills. A debt collector ensures that your bill becomes their top priority. You want to get paid before he wracks up more unpaid bills.
• Assigning an account at 90 days to a collection agency will likely not alienate the debtor. He understands that you have given them enough time already. 
• Your collection costs are lower:  You still have enough time to send Fixed-fee collection letters that cost a lot less than Contingency-based services. By spending about $15-$20 per account, you have an excellent chance to recover your money. Collection demands sent by a professional debt collector are a huge concern for your debtor versus when trying to collect by yourself. They will dig in all resources to get a collection agency off their back.

It is better to recover 75% of your money rather than take a 100% loss.

Need a cost-effective collection agency? Contact us

You are wrong if you think that ignoring written demands and calls from a collection agency will spare you from all the consequences.

A debt collector has several ways to find your latest address, phone number, and employer information. This process is called skip tracing. Your credit card address, USPS change of address, address on your most recent bills are collected by data aggregation companies and/or credit reporting agencies. The majority of this data is accessible through the skip tracing service providers. In this digital age, hiding is hard.

If you do not dispute the debt within 30 days of the first contact made to you (through phone or letter, or other permissible means), the debt is considered valid, and the debt collector can continue to contact you.

If the debtor is not traceable or unresponsive, a collection agency can file a lawsuit, and if you do not respond in court on time, it can result in a default judgment against you. Repercussions can include wage garnishment, frozen bank account, and other assets. Collection laws vary by state, but there are provisions in every state on how unpaid debt can be recovered.

Not every case lands in court. However, most unpaid bills are reported on the debtor’s credit report and stay there for seven years. This diminishes the chances of securing a new loan, getting a good job and even finding a new apartment to live in.

Although all this may look draconian, imagine what will happen to businesses in the USA if most bills remain uncollected. Businesses will shut down, people will lose jobs and the economy will suffer dearly.

Collection agencies have a significant role in protecting businesses, and even the government has laws and provisions that can be followed to recover accounts receivable.

Ignoring a debt collector’s calls can be quite unfavorable.

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Image source:
https://commons.wikimedia.org/wiki/File:Bury_your_head_in_the_sand.jpg
Sander van der Wel from Netherlands, CC BY-SA 2.0 , via Wikimedia Commons

Hiring an aggressive debt collector may initially seem like an effective way to recover outstanding debts, but it comes with a number of disadvantages and potential risks.

Times have changed when collectors could quickly put aggressive pressure on debtors or use forceful tactics to recover your money without any repercussions. There are well-defined debt collection laws, both at the federal and state level, that prohibit debt collection companies from using abusive, unfair, or deceptive practices to collect debts: A typical fine – $1000 per debtor.

Thanks to the internet, debtors are very well aware of their rights today. Google yourself “debt collector harassing me“. In your search results, you will see countless attorneys whose full-time profession is to sue debt collectors at no cost to the debtor. Such attorneys get a cut from the fine paid to your debtor for violations. And you guessed right, most courts issue unfavorable judgments for the debt collectors.

1. Damage to Customer Relationships: Aggressive debt collection tactics can severely damage relationships with customers. A customer who feels harassed or mistreated is unlikely to do business with the company again, and may also discourage others from doing so.
2. Reputation Harm: The reputation of a business is very important. Aggressive debt collection can create negative publicity and damage a company’s image, which can in turn affect future business prospects.
3. Legal Risks: There are laws and regulations governing debt collection practices, such as the Fair Debt Collection Practices Act (FDCPA) in the United States. Aggressive tactics might cross legal boundaries, potentially exposing the business to lawsuits, fines, or other penalties.
4. Increased Costs: If legal action is taken against the business due to the behavior of an aggressive debt collector, it can result in additional expenses in terms of legal fees and potential settlements or fines.
5. Stress on Staff: The staff within the company may be stressed if they are aware of the aggressive debt collection practices, especially if they have to deal with upset customers or legal issues. This can also create moral dilemmas for employees who feel that the tactics are unethical.
6. Loss of Negotiation Opportunities: Aggressive collection tactics might cause the debtor to become defensive and uncooperative. This could lead to lost opportunities for negotiating a mutually acceptable payment plan or settlement.
7. Escalation of Conflict: Aggressive tactics can cause the debtor to become antagonistic, potentially escalating the conflict, which could make the collection process more difficult and drawn out.
8. Mental Health Impact on Debtors: Aggressive collection practices can have a detrimental effect on the mental health of the debtors, which is not only unethical but might also add to the negative public perception of the company.
9. Impairment of Objectivity and Assessment: An aggressive stance may sometimes be based on a lack of comprehensive assessment of the debtor’s situation. In some cases, a more compassionate approach, based on understanding the reasons behind non-payment, could lead to better resolutions.
10. Market Perception: Particularly in smaller industries or communities, aggressive collection practices can affect how a business is perceived among peers and competitors, which might have longer-term implications for partnerships, collaborations, and market positioning.

Considering these disadvantages, it’s important for businesses to carefully weigh the potential benefits and risks of their debt collection approach, and ensure that they adhere to ethical practices and legal regulations. A balanced approach that includes clear communication, understanding, and negotiation can often be more effective in recovering debts while maintaining good customer relationships and a positive business reputation