Debt Recovery

Statute of Limitations in Debt Collection

Statute of Limitations (SOL) is a time period after which a debt collector loses the right to sue the debtor or take any legal action against him. Statute of limitations laws vary from state to state, for example in California it is about 4 years while in Rhode Island it is 10 years. In most states, it’s between 3 to 6 years. Debts that have passed the statute of limitations are also known as “time-barred debts”.

Q1. If the statutes of limitations have passed, is the debtor free from debt?

No, the debtor still has the moral obligation to pay. The debt has not disappeared just that the debt collector can no longer force a debtor to pay or sue him in court.

Q2. If a debt collector contacts a debtor after the Statute of limitations has passed, has he broken a law?

Not necessarily. Let us look at these scenarios.

– A debt collector may have a wrong “Date of Debt” in his system. It is also possible that the debtor has wrongly calculated it, and the Statute of Limitations has not yet expired. Both parties should clarify this amicably, so there is no confusion. Present the proof if necessary.

– A Debt Collector can still try to collect money by sending a letter and calling over the phone. The debtor can tell the collector that he has no intention to pay. The guidelines on the Statute of Limitations vary by each state (and sometimes cities too), a collection agency must be very careful while trying to collect on these time-barred debts.

Q3. What are the consequences of not paying the debt after the Statute of Limitations have passed?
The debt collector can report the bad debt to the credit bureau reporting agencies like Experian, Transunion and Equifax. That unpaid debt will appear on the debtor’s credit history for seven years. This will greatly lower the chances of a debtor taking more loans and sometimes even make harder for him to get a good job for many years to come.

But wait, the debtor may be on the hook for paying taxes on the forgiven debt.
There is another consequence of not paying the debt. If the financial institution forgives or writes off a debt over $600, they may send a Form 1099-C to the IRS and a copy to the debtor as well. This only applies to the principal amount, and interests and other fees cannot be added. IRS will ensure that this amount is added to the debtor’s income. There are some exceptions when this is not applicable, like the discharge of debt due to bankruptcy or debtor’s insolvency etc. Since the debtor took the money and did not pay it back, IRS treats this as an income and demands tax on it. If the debtor claims insolvency, then IRS form 982 may apply. The debtor should consult a tax professional to handle this scenario.

Q4. How is the Statute of Limitations date calculated?
First, let’s understand the “Date of Debt” concept. It is the date when the debtor made some activity on that account. It could be the date when the item was purchased, or when the payment was due, or when the last payment was made, or even when the debtor re-agreed to pay the debt (which means the debtor has agreed again to the ownership of the debt). The most recent date is called the “Date of Debt” and the SOL is calculated from that date.

A debtor may have agreed to pay in 4 different ways
a) Oral Contract – Debtor agreed to pay orally (ex: an orally recorded phone message)
b) Written Contract – This could be a signed contract or an invoice. ( ex: A medical bill plus a written agreement)
c) Promissory Note – In this, the details of repayments are spelled out – For example, mortgages or car loans.
d) Open-ended– Here the balance and repayment terms can change- Ex: Credit cards, line of credit etc.

Following are some examples of Statute of Limitations by each state (in the number of years).

State	Written Contract	Oral	Promissory	Open-Ended
Alabama	3	6	6	3
California	4	2	4	4
Delaware	3	3	3	3
Florida	5	4	5	4
New Jersey	6	6	6	6
New York	3	3	3	3
Rhode Island	10	10	10	10
Texas	4	4	4	4

A state may alter the Statute of Limitations from time to time therefore do not rely on the table above. Your collection agency should have the most up-to-date information on this. Proof of last activity may be a copy of a check, credit card statement, and other forms of communication that may have happened with the debtor.

Q5. What can Restart the Statute of Limitations?

If a debtor makes even a small payment ( say even $10) after the Statute of Limitations has passed or agrees to make payment under a new arrangement, it can potentially reset the “Date of Debt” again. In other words, the Statute of Limitations will reset and the debt collector can sue the debtor in the near future.

Q6. Can the old debts be removed from the debtor’s credit report once the Statute of Limitations has passed?

It can be removed only if the debt is inaccurate or legally disputable or has been resolved. Statute of Limitations has nothing to do with credit bureau reporting and affects the credit score for 7 years.

Q7. Why is there a concept of Statute of Limitations after all?

It’s a kind of fairness doctrine. A debtor cannot be harassed all his life for a debt he could not pay. After all, even a creditor risks if he does not take the full payment immediately. As the debt gets older, circumstances change, documents are lost and important evidence can be misinterpreted. The objective is to encourage diligent collections while evidence is available and fresh. Considering all these factors, the Statute of Limitations came into existence.

Most collection agencies will stop collecting on a debt once the SOL is reached. They just lost the biggest tool ( read it “soft scare tactic”) used to recover unpaid debts.

Are you looking for a collection agency? Get in touch with us by visiting our “Contact us” section.

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Finding a Good Collection Agency

There are more than 5000 collection agencies in the United States. Yes, you read it right.

Each agency claims to be the best because they need business from you. How to find the best collection agency that suits your requirements?

Hiring a collection agency is like selecting a reliable business partner. Here are the main factors that will assist you in shortlisting which collection agency is the best for you.

1. Does the agency have experience in your industry? Any statistics or references?

Collection laws and techniques to recover money from accounts receivable differ from industry to industry. For example, the approach used to collect money for a car dealer differs greatly from that of a dentist. A doctor may want to use diplomatic verbiage to collect money from unpaid bills, while a car dealership may want to go for intensive collections. HIPAA privacy laws apply only when the debt is from the healthcare industry. Therefore, your collection agency should have extensive experience in your industry.

Recovering money is also about your own reputation. An experienced collection agency attempts to build a positive relationship with your debtor so that the problem doesn’t happen again.

A good collection agency must also:

Consolidate debts based on guarantor? This prevents the debtor from being contacted multiple times for your different debts.
Send itemized debts on the same notice if the debtor/patient used your service multiple times.
They should not count the account marked as Bankrupt and Canceled as “Paid in full” to inflate recovery statistics artificially.
Allow you to suspend accounts (ex: if a debtor agrees to pay in installments directly to you) and reinstate the service again ( if that debtor does not keep his promise).
They should allow you to upload debt verification documents on the portal instead of emailing documents back and forth with the collection agency’s support team.
Should have good Google reviews. Definitely more than 4 out of 5 stars.

2. Collection agency’s reputation on BBB website:

Ask for references from your friends or your chamber of commerce. You may also check reviews on the Better Business Bureau (BBB) website. However, however not all collection agencies have great reviews on Google or Yelp. This is due to the nature of their work. Not just the creditors but even debtors can also leave feedback on Google which are generally negative reviews. Check if they are registered on the ACA website. Reputable commercial agencies are also members of the International Association of Commercial Collectors.

Ratings are important, but it is also important to understand that agencies that collect from consumers generally have a lower rating than those that strictly do commercial collections. So, make sure you are not comparing apples to oranges.

3. Do you need services for Individual or Commercial collections (or both?)

Individual (or Consumer) collection refers to collecting money from individual debtors (a person). Business collections (or Commercial collections) is Business-to-Business collection.

What kind of debtors do you have – Consumer Commercial or Both? Therefore check if your collection agency has experience dealing with the kind of debtors you have.

4. Adherence to rules and regulations: Rouge collectors invite lawsuits.

All collection agencies must follow rules specified by the Federal and State governments, which include not indulging in threats, harassment, or falsifying information. Contrary to popular perception, plenty of good debt collectors are out there. While the occasional bad actor gets the headlines, less than 0.01% of all collection contacts end in complaints to state or federal regulators or the Better Business Bureau, according to ACA International, a Minneapolis, Minnesota-based industry trade group.

Rouge and abusive debt collectors have a short career in the industry. Following laws is essential for the survival of a collection agency. Illegal actions can result in fines on the collection agency and the client (the original creditor). A debt collector should remain calm and composed regardless of stress and problems in debt collection activity.

A collection agency that follows guidelines like FDCPA and HIPAA is less likely to get sued. Commercial Collection Agency Association members are the only collection agencies certified by the Commercial Law League of America, and they have to pass some stringent requirements to obtain that certification.

Is your collection agency willing to provide detailed information on their collection process? For instance, how will your customers be contacted (letters/calls/attorney), how often, and how?

5. Licensed to collect in all 50 states? Always better.

Hiring a local collection agency is fine only if your debtors are local (and have not moved out of your state). But if your volume is large and your debtors are present in many states or may move to other states, select a nationwide collection agency that is bonded and licensed to collect in all 50 states. What if your debtor relocates to a different state and is officially a resident of that new state? A collection agency that can serve all 50 states is always better.

6. Adequately Insured against lawsuits or not?

All Collection Agencies should have Professional Liability coverage for their errors and omissions. Defense for suits alleging failure to comply with the Consumer Protection Acts is the most common suit Collection Agencies face. FDCPA lawsuits are rising every year. Even frivolous claims cost money to defend; thus, this coverage is vital to a Collection Agent’s business.

7. Ask for references and their recovery rates

Ask your collection agency to provide references for their old or current clients. Not all collection agencies will provide this. But an agency should be able to provide their average recovery rate for your industry minimally. This will give you a fairly good idea about their debt collection performance. A good collection agency will help you improve cash flow and increase your company’s profitability.

8. Do their “Services and Cost” suit you? Check the pricing of others.

Debts lower than $1000 generally do not require a customized collection approach. The bigger the debt, the higher the need for a well-thought-out customized approach. Some services are flat fee based while others are percentage based. Here are some examples of services that collection agencies offer.

a) Written Demands: These are collection demands/letters and cost about $15 for 5 letters. Do they offer pre-collections as well? ( in pre-collections, demands are made under your name instead of the agency.)

b) Collection Calls: These are contingency-based collections. Depending on the balance, age, and services provided, a collection agency may charge between 20% to 50% commission of the amount collected. No recovery means no fees.

c) Legal suit: This is also a contingency-based collection and is suitable for larger outstanding debts only. An agency may charge between 10% to 50% commission for legal collections. Some collection agencies have tiered contingency rates based on the size and age of the account.

Look out for savings: Make sure to understand the fee structure of the collection agency fully. One collection agency may charge 40% for service; however, a similar agency may charge you 25% for the same service.

9. Technology: PCI complaint and is your data handled safely?

Does your collection agency have an online self-service collections portal (client portal), so you can see the debt collection status of each account submitted? If they do not have a client portal, will they keep you informed about the collections activity or proactively tell you when a payment is received? Do they take enough measures to secure your and the debtor’s data? If they accept credit cards, they should ideally be PCI compliant. Does their online client portal use Secure Socket Layer ( SSL / HTTPS protocol)? If they are sharing data with other companies, are those secure or not?

10. Skip tracing services – Did your debtor move? Locate him!

Skip tracing is a service that allows a collection agency to try to locate a debtor if their contact information (address/phone) has changed. Unable to locate a debtor is a fairly common scenario, therefore using skip tracing to find the debtor’s latest whereabouts is an important part of collections. [See our detailed article here on Skip Tracing]

11. Background check on debt collectors?

A collection agency should check that their client’s sensitive data are not handed over to debt collectors with a criminal background. Your reputation is very important, and you want to ensure that the debt collector is not prone to use collection methods that harm your reputation.

12. Is Free Credit Bureau reporting an option or not?

Many collection agencies do not report the noncollectable debt to the credit bureaus. During a collections call, if a debtor asks the collector “Will you report this to Credit Bureaus if I do not pay”, or “Will this appear on my Credit History?”. If the collector says “NO”, the debtor is less likely to pay.

You have the right to place an entry on the debtor’s credit report if they have not paid your bill. It also protects creditors/lenders who may give a loan to your debtor in the future. A good collection agency will promptly mark the debt as paid on the debtor’s credit report once they have been notified that the amount has been paid in full. Every collection company must also follow the Fair Credit Reporting Act (FCRA) laws.

13. Litigious customer check performed or not?

Few debtors have a history and habit of suing back businesses that they must pay. Ideally, a Collections Agency should do a scrub to check if a customer has a litigious history; if so, advise you accordingly. Select a Collection Agency which does litigious debtor checks since very few agencies do it, this will tremendously help to minimize the risk of potential lawsuits that can be filed against you.

14. How long will the accounts remain valid after purchase?

For written contacts, the accounts you buy have an expiration date ( typically 1 year or 2 years). It is ultra-rare for an agency to offer accounts that do not have an expiration period. This enables you to buy a big chunk of accounts for a cheaper rate and keep using them over the years. A $20 account cost for 5 contacts will fall to around $10 per account when a large chunk is purchased.

15. Are you being pushed for contingency services even if the account is not so old?

Fixed fee services have an upfront cost but are extremely cost-effective. Core collection calls made by a debt collector are contingency-based and are a great deal for the collections company but not you. So if the age of your accounts is within 120 days and still you are being pushed for contingency collections by their salesperson, think twice. Understanding all the types of Collection Agency services and collection costs are important.

Note:

We have listed a lot of selection factors above. Even a great collection agency may not be able to fulfill all points discussed above, which does not make them bad or inferior. But this list will help you make a meaningful selection when comparing one collection agency with another.

We have shortlisted a few collection agencies based on their performance, pricing, and experience. You may contact us in case you are looking for one.

Getting the most out of your collection agency:

1. Be honest with your collection agency. Keep them informed of any changes that you may become aware of during the collections activity on any account. Keep all the paperwork supporting the validity of the outstanding debt and provide them when asked by your collections agency.

2. Sooner you submit an account for collections, the better the chances are of recovering that money. Typically, a collection agency will accept accounts 60 days after the payment date was due (also called the date of debt).

Visit our “Contact us” section to get in touch with one of our shortlisted collection agencies.

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What is Skip Tracing? Find the latest contact information of a person

Skip tracing is a paid service using which anyone can find the latest contact information of a person, this includes their present address, employer, phone number, and more. Skip tracing costs vary from $50 to $175 per person.

In short, Skip-tracing is the process of tracking down individuals. Most collection agencies do this for free on all accounts they work on.

Cheaper Option – Use a Collection Agency

Using debt Collection Agencies is a lot cheaper option (almost a steal). For approximately $15 per account, they will not only attempt to recover your money but also do skip tracing for free.

Perform skip-tracing on a person to find his latest contact information. Yes, skip tracing is free.
Send five demand letters to your debtor.
Verify if the person has filed for bankruptcy or has deceased.
The debtor pays you directly, with no other cost involved.

Collection agencies buy a bulk subscription from these Skip Tracer Services, so their cost of locating a debtor is a fraction of what it would cost you to find a single debtor. They buy thousands of accounts at a time and keep using them gradually.

Where to Skip Trace Yourself

Here are a few services if you want to do the skip tracing yourself. They range from $50 to $175 per account.

1.) Accurint by LexisNexis www.accurint.com/collections.html

2.) TLOxp by TransUnion www.transunion.com/product/tloxp

3.) First Search By Equifax: www.equifax.com/business/firstsearch/

4.) IDI Data ididata.com/skip-tracing/

5.) MicroBilt Skip Tracing www.microbilt.com/product/skip-tracing

Need for Skip Tracing in Debt Collection

What if you send a bill to your customer/patient/debtor, and it comes back as non-deliverable, or if you try to contact them on the phone number listed in your records, but it no longer works? Suddenly your installments appear to be non-collectible.

The biggest mistake that most creditors make is to keep an unpaid account aside for weeks, thinking about what to do about it, even though their own repeated attempts to contact the debtor have consistently failed. Waiting on this account any longer means you are letting this delinquent account become older, drastically lowering the chances of recovering money from this account.

What is Skip Tracing or “Skip” Status?

In the collections industry, a debtor whose contact information has changed or if the address/phone provided by the creditor is no longer valid, then the account is categorized in “Skip” status. It requires to be skip traced. They do not charge anything extra to their clients for it.

If the debtor is unreachable, what will a Collection Agency do?

For collection agencies, “Skip” status or a “Missing debtor” is a fairly common situation. An experienced collection agency has many tools and tricks to find the debtor’s latest contact information.

Collection agencies do not acquire this information themselves but pay Skip Tracers, who collect this data from the following sources and sell it as a service. This may include

1) Information on the debtor’s latest credit application.
2) Relatives
3) Phone books
4) Post office/USPS
5) Utility companies
6) Banks
7) Voter registration records
8) Credit bureaus.
9) Reverse address/phone lookup sites
etc..

Most common reasons why debtors are unreachable:

1. Unreachable landline number: These days, many people are ditching their landlines for cell phones. In such cases, the debtor may have the intention to pay, but he did not realize that the creditor needs to be informed about his phone number change. Leaving you to do all the detective work.

2. The debtor has relocated: This could be because of a job change, divorce, retirement, health issues or other genuine relocation reasons. The debtor is surprised when contacted on his new address or phone number, but his intention is not to go into hiding or not to pay.

3. Intentionally hiding: This could be because the debtor is in some legal trouble or hiding from the police or even from his family members. Maybe the debtor has to pay money to other creditors like you and decided to go into hiding. Regardless, such debtors are the hardest to locate, and it’s even harder to collect any money from them. They might have given you the wrong information about themselves while buying your product or service. In worst circumstances, it might be a case of identity theft too. These kinds of cases need to be handled very carefully.

Letting a collection agency handle Skip Tracing and Collections is a cost-effective solution:

There are many Skip tracing techniques. But creditors (or companies) have to shell out money to purchase access to this information. Therefore it is better to hire a collection agency that already has access as part of their services. Skip tracers should comply with federal and state laws controlling access to public records.

Collection agencies are super-efficient. Factor in the amount of time, stress, and energy you or your staff will put into these kinds of efforts. Is your staff even trained for such detective work? Plus, add the cost of those staff hours of your employees that they spend on this task (their salary, office space, insurance, etc.), therefore assigning this account to a collection agency almost always turns out to be much cheaper and an efficient option.

Skip-tracing has always been an important part of the debt collection process. Collection agencies can quickly access public and proprietary data from thousands of proven sources by using paid skip tracing services. Although there is no guarantee that a collection agency, even with all its resources and tricks, will certainly be able to locate the debtor, the chances are far better than what your untrained in-house employees would do. Some individuals confuse skip tracing with USPS change of address check, both are different.

Other interesting information

Sometimes, the skip tracing process reveals additional information like – If the debtor has declared bankruptcy, has deceased, is in active military duty ( if so, different rules apply), or if the person is known to file lawsuits against the debt collectors or creditors. These reasons will likely discourage even a collection agency from performing any debt recovery efforts.

It is possible that the debtor was not found during the first round of Skip Tracing, but with advancements in technology, it is now possible for Skip Tracers to report once there is a hit later. This automatic process is called “triggering”.

Most Common Skip-Tracing Services

The USPS provides basic skip tracing. A popular skip tracing service is “Accurint for Collections” by LexisNexis. Skip tracing services provided by major credit bureaus are also extremely popular. TransUnion’s TLOxp, Experian’s MetroNet, and FirstSearch and Finders by Equifax are other popular skip tracing services.

Video: What is skip tracing?

Most common excuses debtors give during collection calls

Debtor excuses are the biggest problem in debt collection. The most common reasons why debtors are unable to pay their debt are mentioned in this article. Sometimes they are actually truthful, but many simply use these as a delay tactic to defer paying on time or even avoid paying altogether.

A debt collector should insist on proof or an explanation about what the debtor is saying. The debt collector may even give an option to the debtor to pay the outstanding amount in installments or renegotiate to settle the debt for a slightly lower amount ( provided they have authorization from their client to settle debts for that lower amount).

An aggressive approach will force the debtor to hide things from you, lowering your chances of getting paid.

Financial Problems	How to negotiate
• Job Loss. • Divorce. • I am waiting for my customers to pay me first. • Cash flow problem. • Spent money on a medical emergency. • Lost money in gambling. • No money to pay, no special reason. • Medical emergency expenses.	When does he/she expect to be employed again? Is the debtor receiving unemployment benefits? How are their other expenses being met? Understand the debtor’s situation and ask when he expects the situation to improve. Contact the debtor at a later date again. Maybe the debtor is more comfortable paying in installments or settling for a lesser amount.
Delay Tactic	How to negotiate
• Need a copy of the invoice or statement. • Prove me that I actually owe this amount. • Never received an invoice asking me to pay. • Check is in the mail. You will get it soon. • No time for this right now. I have other priorities. • Our accounting department works only 1 hour a day or once a month, please call during that time. Our accounting department sits elsewhere. • No time to go to the bank due to my work schedule.- Changing banks or checkbooks not received yet. • Signatory is not available. • Lost the bill. Can you send the invoice again? • Really, I haven’t paid it yet? Give me time to check my bank statement. • I know nothing about this. • Debtor returns the bill to the sender and tries to become untraceable. • I did not expect my bill to be that high. • Someone else handles my billing ( ok .. ask if they can add that person to this call now?)	Provide information/ documentation if the debtor had requested verification of the debt. This could be resending the invoice or documentation to prove that the debt is actually owed. Even better – fax or email it to them immediately while you have them on the phone. However, most of the time, debt collectors have to actually call the debtor on a later date/time that is convenient for the debtor, and then communicate that he has already been given enough time. An experienced debt collector knows how to work around these delay tactics. Ex: He may ask the debtor to give the check number and date when the check was written. The debtor will usually fumble badly if they are lying.
Dispute or Denial to pay	How to negotiate
• I do not owe anything • I will send you legal notice for harassing me. • Let’s go to the court. • Invoice is disputed. • Never received the goods or service. • Goods were defective, or service provided was bad. • I am being overcharged, or I did not expect my bill to be that high • My insurance company did not cover my entire bill as I thought. • Over my dead body. • Threats: Dude, I have connections; will have someone visit you !!	If the debtor continues to resist and there is adequate proof that the debtor owes the debt, it may be time to check with the attorneys if a legal suit is advisable. However, it is quite possible that the debtor really owns nothing. The data in your systems could be incorrect or outdated.
Other Reasons	How to negotiate
• Statute of limitations • Person you need to talk to is not here right now. • Bankruptcy • Debtor has expired • I have already paid. • Wrong number.	A debt collector needs to get the facts straight and get further information on the case. Take a call if further collection activity is even possible or not.
Possible Genuine Reasons	What to do?
• I am disabled and have no money. • I am an armed service member ( Military, Navy, Air-force, etc.) and am currently posted overseas.	Check with your supervisor if an asset check/search is advisable or not. Most companies will not do this unless the balance is very high. Service Members Civil Relief Act and Fair Debt Collection Practices for Servicemembers Act (HR 5003) give some extra rights to military personnel deployed overseas, ensuring their rights are not violated.

A Debt Collector should deal with great patience yet sound confident and assertive. Using abusive or unprofessional language is not only illegal; it can also take the debtor to a point where he becomes completely non-cooperative.

It is very important to hire a good Collection Agency which employs top-of-the-line debt collectors, even if they charge slightly more than other agencies. Not every debt collector can make a perfect collections call. They get better and groomed over time.

Image Credit:
https://morguefile.com/creative/typexnick/4/all

Consumer vs Commercial Collection Agency : Differences

Commercial Collection Agency	Consumer Collection Agency
B2B Collections or Corporate Collections (Both Creditor and Debtor are business entities)	B2C Collections or Individual Collections (Creditor is a business, and debtor is a person)
Lower Contingency Fees	Higher Contingency Fees
Higher Recovery Rate	Lower Recovery Rate
Less stringent debt collection laws	Strict debt collection laws enforced
Customized collection approach for each case	Standard proven techniques, less customization
Attorney gets involved early in the collection process	Attorney gets involved in only a few cases
No FDCPA, No 30-day dispute period	FDCPA Laws and a 30-day dispute period applies
IACC accreditation preferable	ACA accreditation preferable
Statute of limitations generally do not apply	Federal laws regarding Statute of limitations apply
New CFPB guidelines are not applicable	They came into effect on Nov 21, 2022

Need a Commercial collection agency with 20 years of experience? Contact Us

The term “Commercial Collections” refers to the debt collection activity where the debtor is a business entity. The business can be a sole proprietorship, partnership, LLC, Inc, MNC, etc. Commercial debt collection is also called business-to-business (B2B) debt collection.

Difference between Commercial Collection and Consumer debt collection

One may wonder, when a “debt is a debt, ” why do we classify it as a Commercial or a Consumer debt? When it comes to debt collections, they are treated quite differently, primarily due to the difference in debt recovery laws instituted by the US Government.

1. Fair Debt Collection Practices Act (FDCPA): These are comprehensive debt collection laws that the U.S. government has specified for collection agencies. They must be followed while collecting the Consumer debt. The strict laws of FDCPA protect an individual from any illegal harassment from a Collection Agency. Some states have their own set of laws, but most of them follow the federal FDCPA version. FDCPA rules prohibit all forms of harassment, threats and deception.

There are additional laws that may be applicable, ex: Fair Credit Reporting Act (FCRA), Telephone Consumer Protection Act (TCPA), and Service-Members Civil Relief Act (SCRA).

Medical collections are additionally subjected to the Health Insurance Portability and Accountability Act (HIPAA). Creditors can share only limited patient information, and collection agencies should securely handle the data.

Important Note: Commercial Debt Collection is NOT subjected to the FDCPA; this law applies to only Consumer Debt Collections. There are a separate set of fair debt collection guidelines which apply to commercial collections, however they are not as stringent as Consumer debt collections.

Examples of Consumer debts include – unpaid credit card bills, mortgage bills, student loans, and medical debt of an individual. Due to the higher risk and effort involved in recovering money from Consumer debts, collection agencies charge a higher fee for Consumer collections than for Commercial debts.

2. A commercial debt collection agency treats every case differently. Scenarios change depending on the type of business. For example, the approach involved in collecting money from a hospital will differ from that of a car dealership. Collection Agencies maintain a delicate balance between recovering the debt and maintaining good business terms between the parties. The average balance of commercial accounts is generally much higher when compared to consumer debts. Commercial collection agencies are highly specialized in their field.

3. A 30-day dispute period does not apply to Commercial Collections
When the debtor is a consumer, a collection agency has to provide a 30-day dispute period regarding the debt. During the dispute period, a consumer can also ask the Collection Agency to prove that he indeed owns the debt (also called as the “verification of debt”). However, a commercial collection agency can start the recovery process right away.

4. The commission fee is lower for Commercial Collections:
The contingency fees of a commercial collection agency vary from 10% to 50%. For accounts over $500K you can negotiate a collection fee of about 10%. For accounts about $50K, the fee is around 20%; for accounts lower than $1K, it’s around 50%. It is always around 35% to 50% for Consumer Collections and averages around 40%. Even with lower contingency fees, a Commercial Agency can make more money per case due to higher balances. If a commercial debt is over one year, 5% extra fees may be charged.

5. Other notable differences:

Bankruptcy laws are different for individuals and companies.
The way Credit Check is run on individuals vs companies is vastly different.
A good commercial collection agency would likely be registered with the International Association of Commercial Collectors (IACC). Collection agencies dealing with consumer debt are affiliated with the Association of Credit Collection Professionals (ACA)

The primary advantage of hiring a commercial collection agency is their extensive knowledge of business laws. The laws presume a business owner to be savvier than the average consumer. It is assumed that business owners have a higher level of sophistication and accountability.

Attempting to collect the money while following all the debt collection laws can be challenging for normal people.

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The commercial debt collection process generally includes these steps:

Assigning the case to a Commercial debt collector, background investigation, skip tracing, credit analysis, finalizing a collection approach, and payment plans. A commercial law firm ( or an in-house commercial lawyer) will get involved if everything else fails.

If your debtors are from across the USA, it is better to work with a nationwide collection agency licensed, bonded and qualified to collect in all 50 states. Check if your commercial collection agency follows the latest data security techniques, encryption, and technology because, in case of data leaks, you may be held liable by your own customers.

What is a Debt Collection Agency?

Collection Agency is an organization that attempts to collect money from individuals (or businesses) who have not paid their bills on time. Accounts are typically transferred to them after they have been over 60-90 days past due.

What kind of debt can be assigned to a debt collection agency?

1. Unpaid medical bills of a doctor or hospital.
2. Services or products which were sold but were not fully paid.
3. Mortgage debt, credit cards bill or other forms of bank delinquencies.
4. Unpaid phone bills, gym bills or other recurring membership fees.
5. Unpaid installments of car loan, student loan or bank loans.
6. Other interest and penalties.

Overall, you can initiate collection activity for almost any past due account for which you are legally entitled to get paid for and have sufficient proof to back your claim.

Example

Let us assume, you are a ‘dentist’, and your patient agreed to pay for your services in 5 installments. But the patient has stopped paying after the 2nd installment. Your gentle reminders to the patient have not resulted in any success. Would you write off the unpaid amount or would you go after the patient by trying harsher measures? It is advisable to avoid both. Taking intensive measures could even result in counterproductive action against you.

Now you approach a Collection Agency to collect your past due amount from your patient (or say, Debtor). Depending on the type of service you select, a Collection agency will attempt to collect the outstanding debt and charge you a fixed fee or the percentage of the debt collected. (Read: Services that Collection Agencies offer).

Should I try to collect the debt myself?

Sure, if your staff has time to do a few polite reminder calls or send bills to the debtor, and then time to do the follow-up for the same, try it out. But be extremely careful, respectful, polite and patient during your communication with the debtor. Most likely you will realize that too many man-hours are being spent and your staff is probably trained adequately to handle these situations.

Collection agencies are not only experts in collecting debt, the moment your debtors get to know that a professional debt collection agency is involved, but they are also more inclined to pay off the outstanding debt at the earliest.

Documents to prove you legally own the debt:

There are thousands of collection agencies in the United States, big and small, and each has a different way of working and the services they offer. In most cases, the collection agency will not ask you to submit all proof (or paperwork) of the outstanding debt initially, they will ask you to provide that if and when needed. For example: If the debtor disputes the charges. A collection agency will normally start the collection activity by asking only the basic information like Debtor Name, address, phone, amount due, bill/reference number, date of debt and sometimes debtor’s SSN. At all times you should maintain sufficient proof of the outstanding debt.

Additional information:

As mentioned earlier, collection agencies are experts in collecting debt, that’s what they do all year long. They ensure that the demand notices being sent out with maximum impact (collection letters, collection calls or legal notices), and that debt collection laws are followed, it includes “Fair debt collection practices act” specified by each state.

Before a collection agency signs you up as a client or starts accepting your past due accounts for collections, they will ask you to sign a legal agreement (on paper or an online contract). This agreement authorizes them to start collection activity on your behalf. Their agreement also includes important disclaimers and some standard legal stuff.

It is normally advisable to start collection activity after it has been over 60 days from the Date of debt, or that date when the payment was due. The sooner you submit an account for collections, the chances of recovering your money are significantly higher.

Defaulted debts are often reported on the debtor’s credit history, and it stays there for several years.

Watch this video:

Image source:
http://www.creative-commons-images.com/clipboard/collection-agency.html
Creator attribution: Nick Youngson – link to – http://nyphotographic.com/