Debt Recovery

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

Why?

• 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 own efforts have been pretty much exhausted, and the account is clearly in the default territory. Your own staff is spending more time and energy on 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 will typically recover 75% of your money when the account is assigned at 90 days.
• Your internal staff is no match with a debt collector’s persistence and collection tactics. Your accounting department is unaware of collection laws that keep changing all the time.
• You can write off collection costs as business expenses in your taxes.
• Most likely your debtor likely has several other unpaid bills too, a debt collector ensures that your bill becomes their top priority. You want to get paid before he wracks up more unpaid bills.
• By assigning an account at 90 days to a collection agency, you 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 you are 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 taking a 100% loss.

Need a cost effective collection agency? Contact us

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

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, your 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 the 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 the 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, just 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

If you plan to outsource your accounts receivable to an aggressive collection agency, then kindly read this article and be aware of all the risks you are taking.

Times have changed when collectors could easily 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.

Hiring collectors who use aggressive tactics can quickly ignite the other party, and the possibility of having a very rough conversation becomes a reality. We all are humans and even a debt collector can easily cross the legal red line during this heated conversation.

An aggressive collection call in fact does precisely the opposite you are trying to achieve. Such intimidating calls make your debtor angry, irritated, and even more firm about not paying their bill.

You must hire a collection agency that is persistent, amicable towards your debtor yet firm in its approach. Experienced and diplomatic debt collectors who follow the laws collect far more money than aggressive ones.

Wholesale and distribution companies are the vital link between manufacturers and customers, and their role in US economy is undoubtedly very crucial. However, distribution companies regularly have accounts receivable that are generally B2B in nature. The probability of collecting money from unpaid invoices decreases as time passes by.

Outsourcing collections to a professional debt collector raises the probability of getting paid by many folds. Your defaulters know that a collection agency will not go away quickly and will employ every tactic and legal means available to recover the debt. More importantly, collection laws vary by each state; therefore a collection agency for distributors with a nationwide presence will be able to handle debts in all 50 states in a legally compliant manner.

Your accounting or internal staff hates chasing people for accounts receivables. Collections is neither their core strength nor they were hired to do this job. On the other hand, a business debt collector performs recovery all year long, and you cannot match their efficiency and effectiveness through the in-house employees.

A collection agency will quote a custom fee based on the age and outstanding amount. Need a good collection agency? Contact us

Summary: Indeed! Individuals can be legally forced to pay their debts with their cryptocurrency, but the creditor must have a judgment which states that the debtor is obligated to pay off the debt, including any cryptocurrency they own. Knowing whether or not the debtor owns crypto like bitcoin is of course a challenge. That is why a creditor must attempt to file a legal suit in which the debtor must declare all his assets under oath when asked by the judge.

Debtors are legally bound to pay their liabilities like outstanding credit cards or unpaid bills etc. Creditors have the legal right to claim for debts, and in case of nonpayment, they must attempt to ask the courts to bind individuals or companies to pay back their dues with all their financial assets, including the debtors’ crypto assets. Laws differ from state to state. Therefore one must ask their local attorney for the best possible approach.

U.S. government regulatory bodies treat cryptocurrencies differently.

• Security and Exchange Commission (SEC) treats cryptocurrencies as securities,
• Commodities and Futures Trading Regulator (CFTC) considers cryptocurrencies as commodities, and
• Internal Revenue Service (IRS) claims digital assets like properties.

The creditors should vividly understand how various regulatory bodies define cryptocurrencies before claiming their debts to pay with the digital assets of debtors.

Let’s review what could cryptocurrencies had seized by the U.S. government earlier before?

There are several occasions when the regulatory authorities of the U.S. have seized billions of dollars worth of cryptocurrencies to stop tax evasion, money laundering, false filling of tax returns, and trading illegal goods.

Recently, CNBC reported that IRS had confiscated around $1.2 billion worth of cryptocurrencies this year. The U.S. Marshals Service is responsible for auctioning the U.S. government’s crypto holdings. So far, Marshals agent has seized and auctioned more than 185,000 bitcoins valued at over $7.2 billion—notably known auction of 30,000 bitcoins from the Silk Road. In June 2021, the U.S. government auctioned more than $21,000 of bitcoin, litecoin, and bitcoin cash to compliance tax liability.

The sale proceeds are deposited into the U.S. Treasury Forfeiture Fund and the other commonly known fund is the Department of Justice Assets Forfeiture Fund.

How do traditional payment methods work to collect payments?

Traditional payment method depends on centralization and the controlled influence of intermediaries. Users have no access to control and command.

Cash-based mechanisms build on a trusted system supported by the legal and regulatory bodies and are accepted mediums of exchange between judiciaries.

Contrary to this, decentralized distributed systems are trustless systems that do not rely on the parties; they depend on protocols that manage financial services.

Blockchain restructured the financial system in a decentralized way. The decentralized finance market DeFi has touched the peak of 89 billion dollars as of May 2021.

Here we discuss how U.S. traditional payment systems work and fit in the current legal and regulatory framework.

Alias walks into the restaurant to buy a cup of coffee. She can pay to the restaurant using multiple payment options. She can pay with provided below options;

• Cash
• Credit card / Debit card
• Mobile app including PayPal, Apple App, etc.

Cash is the preferred payment option. It doesn’t require the payer’s identity, but the main risks associated with cash are theft, loss, or carrying issues. The other preferred payment system is cashless payment through credit, debit card, or mobile apps.

 

Various payment options have different implications for payer and merchant.

Each payment method is accompanied by its own procedure and transfer rules from the buyer’s financial intermediary to the merchant’s financial intermediary body.

When the buyer makes the purchase, and the payment is delivered to the seller. Financial intermediaries should charge transaction fees, money can be theft electronically & transactions across borders takes plenty of time to execute due to the intermediary clearance settlement system.

The settlement process is complicated where goods or services are being exchanged against payments.

When the payer initiates the payment through Credit/Debit card, the merchant sends the transaction to a payer’s account to verify the payer’s identity, device, or transaction message connected to the payment system. In this way, the payer’s bank initiates payment to the merchant’s bank. This process also involves checks at various points, such as passwords, to verify the payer’s identity. The payer’s account provider verifies the identity of the payer before making the transfer of funds.

Then clear the payment to confirm the transaction before settlement. Finally, a receipt is issued to the payer when the merchant receives the funds. The amount is reconciled between two or more entities & finally, the payment process is completed.

When a payment transaction passes, it credits the merchant’s account and debits the payer’s account.

How does Blockchain work?

Blockchain is a digital ledger that keeps immutable or non-forfeitable records of transactions and distributes them across the network of computers or nodes on the Blockchain, eliminating the need for third parties or financial institutions to process payments.

Transactions on the Blockchain are cryptographically secured. The term cryptography is used for the hidden art of writing secret codes. Every transaction recorded in the block is duly time-stamped and added to the already existing Blockchain, making the blockchain chain.

Here is the infographic that describes how does Blockchain works?

How will Debtor pay his Debt to the Creditor in a decentralized way?

Let’s understand by giving a simple explanation of how blockchain process the debt payment transactions that contribute when to interact with Creditor’s wallet to share value transmission across distributed ledger network without an external intermediary, ensuring transparency between Debtor and Creditor.

Every user or node keeps two keys; a public key and a private key in the blockchain network. The public key is used to encrypt/lock the transaction, while the private key is used to decrypt/ unlock the transaction.

A debtor can either transfer the dollars into his bank account by selling his bitcoins/crypto using one of the crypto exchanges and then making the payment to the creditor or a collection agency.

Otherwise, the Debtor will pay his Debt & send a digital transaction to the Creditor in the blockchain network.

The Debtor would use the public key that belongs to the Creditor’s wallet address to encrypt or lock the transaction. The Creditor will decrypt this transaction using its private key matching its public key that Debtor has already used to send the transaction to the Creditor.

This transmitted transaction becomes encrypted using hashing algorithm encryption and a private key of Debtor to sign the transaction. Now, the transaction is encrypted or locked and digitally signed by the Debtor, ensuring that the transaction originates from the Debtor who is the actual owner of the transaction in the blockchain network.

The Creditor will use its private key of wallet address to decrypt or unlock the transaction.

Closing Remarks:

El Salvador is the first country in the world that accept Bitcoin as legal tender. Governments are formulating laws to adopt crypto-assets in financial streams widely.

Besides this, in May 2021, CNBC reported a seizure incident of 1.04430259 bitcoin from a hardware wallet belonging to an individual in Kansas.

Many Crypto banks are emerging in the sphere, and laws are under formulation to allow creditors to force the debtors to pay their bills using crypto legally.

References:

https://cointelegraph.com/news/crypto-assets-to-be-regulated-differently-in-the-us-potential-impact-on-industry

https://medium.com/cryptolawreview/crypto-debt-collection-c3825a8588ca

https://www.cnbc.com/2021/08/04/irs-has-seized-1point2-billion-worth-of-cryptocurrency-this-year-.html

https://www.alperlaw.com/blog/can-cryptocurrency-be-garnished/

https://en.wikipedia.org/wiki/Digital_signature

https://www.cnbc.com/2021/07/28/us-marshals-service-hires-custodian-to-hold-crypto-seized-in-criminal-activity.html

https://medium.com/technology-nineleaps/blockchain-simplified-part-1-6cc3079cfd24

Several collection agencies have been using electronic mediums like emails, social media platforms, and SMS to contact debtors. This approach is significantly different from traditional collection calls and letters.

To a standard person, it may appear that contacting a debtor either way (traditional or electronic) is the same, a contact made is a contact made regardless of the medium .. right? Well, it’s not that straightforward. The debt collection industry is constantly under the lens of government regulators, surrounded by strict collection laws and several attorneys who are always looking for an opportunity to sue collection agencies over the slightest fault.

Emails, social media platforms, and SMS are way cheaper than traditional mail or hiring a professional debt collector to be on the phone with a debtor for a significant time. Therefore many collection agencies use a blend of traditional and electronic mediums.

The FDCPA (federal debt collection laws) have not changed much for decades now. Contacting a debtor through the electronic medium is still a grey area. What if the email address is shared by all family members, then technically, collection agencies risk a violation. The electronic contact rules are still evolving and FDCPA will surely issue more clarification around this in the future.

People born after 1980, means Generation Y and Generation Z are far more technology savvy and many of them have no problem being contacted electronically. In fact, many prefer it that way.

Collection agencies now insist that their clients (Original creditors) include a paragraph in their legal service agreement which permits that the customers can be contacted (by original creditors or by a collection agency) in case of a late payment/default. Essentially, it means on any/all contact information provided can be used for contact, that includes their phone number, email, through the SMS, or on the social media. Sometimes debt collectors take a (recorded) consent from the concerned debtor that contacting him/her through SMS or email is acceptable. Some agencies don’t do anything, which is not ideal.

In short, yes, there is a risk involved if a debtor is contacted by a collection agency using an electronic medium, but many collection agencies have adopted it already.