While customers may dread receiving calls for payments, businesses are equally wary of hiring a debt collection agency for variety of reasons, biggest being loss of reputation and clients. Collection Agencies focus on maintaining positive relationships between businesses and consumers.
The first section of the articles focuses on the myths that debtors have and the later half talks about the myths that creditors/businesses have about Collection Agencies.
Common misconceptions that Debtors have
If you have outstanding debts, you either already have experience dealing with debt collection agencies, or you will at some point. Debt collection can be a complex process. It combines law with aspects of finance, accounting and tackling with various debtor excuses to avoid payments. There is also be some degree of pressure involved since the debt collector’s job is to pursue many options to satisfy amounts owed.
We’ve identified and busted several myths about debt collection agencies.
Burying your head in the sand will make debts go away
This first myth is one of the biggest misconceptions in debt collection. Creditors and debt collectors do not simply move on to the next account if debtors ignore phone calls and letters. Ignoring debt is not a solution to a debt problem. In fact, a debtor may miss excellent opportunities to settle debt by refusing to face their unpaid bills. Once an account is with a debt collector, the music has just begun and they will continue to pursue recovering debt in one way or the other, in a legally complaint manner. If you cannot effort to pay in full in one go, negotiate for a payment plan.
People can become “judgment proof”
This myth is also common, but it is not the top misconception because there are some circumstances when it can be true that a person can become insolvent. Insolvency simply means that a person’s debts outweigh their assets. However, unless an individual legally declares bankruptcy and obtains a discharge of debt in bankruptcy, a debt collector may be able to wait until the individual begins accumulating assets again, and then collect. Some people believe that if they have no money in the bank, do not own property, and live paycheck to paycheck, then they are “judgment proof.” This is not the case, and a collector may find ways to collect on a debt.
Debt collectors are shady and use underhanded tactics
Collecting debts is a professional service governed by laws and regulations. While there are examples of debt collectors violating consumer protection laws, these incidents are often isolated incidents and not the norm. Debtors should know their rights and be on the alert for violations of debt collection laws, but should not use these protections as a reason to avoid working with a collector to resolve a debt. Debt collectors are required to work within various laws, the most prominent being the FDCPA.
Debt collectors are bullies
Similar to the fear that debt collectors are shady is the misconception that they are bullies that only have the goal of forcing a debtor to pay. Professional debt collectors are results-oriented and want to resolve a file, not ruin someone’s life or make a sport out of someone else’s misery. Most debt collectors work with you to resolve the debt in an amicable manner, rather than unnecessarily harass or threaten you.
Small debts don’t matter
Some debtors believe that their debts are too small. Maybe they owe a medical practice $100 for an unpaid copay and think it unlikely that the medical practice will seek to recover the bill. Businesses that often have small individual accounts receivable amounts do not always write those debts off of their books. The trend for many companies is to leverage technology and automation to pursue these amounts. The bottom line — debtors can never tell if a creditor is going to write off debt or not. How much the collection amount has to be assigned is entirely up to the creditor, and there is no minimum amount for commencing the collection process.
Paying a debt collector doesn’t impact credit score
Many debtors believe that once their accounts have gone into collection, their credit is shot and there simply is no hope. This misconception often fuels ignoring collector calls and deciding to not pay even small amounts that the debtor can afford. However, collection status does not stop credit reporting in every case, and credit standing can continue to degrade. Working with the collector to make payment arrangements can be the start of repairing one’s credit.
Debt collectors are relentless; all they want is money
This myth also causes debtors to avoid communicating with debt collectors. The truth is, while in many cases the desired goal of a debt collector is to get payment from a debtor, often they just want to resolve the case. Sometimes that means entering into a repayment plan or other programs to satisfy debt. The goals of debtors and collectors can, and frequently do, align.
Debtors should avoid debt collectors and should pay the creditor directly
In many cases, once a debt has been placed with a debt collector, the original creditor no longer has an interest in the account. Banks, medical practices, and other businesses that can have accounts receivables sometimes sell or otherwise transfer their collection accounts to other companies. For this reason, debtors should deal directly with the debt collector. Large institutions, such as a commercial bank, might not immediately know that the debt has been transferred, so payment can end up in limbo.
Debt collectors will come to my home or at my workplace
99.99% of the time a debt collector never visits the home or workplace of the debtor. Only in the rarest of rarest conditions where a legal judgment has been passed to seize some of the debtor’s assets, something like this may happen.
Partial Payment will stop those collection calls
No, the calls resume soon after some of the promised installments are not made. It is the debtor’s responsibility to pay the debt in full unless a lower amount is agreed upon explicitly to settle the matter.
Common misconceptions that Creditors / Businesses have
Debt collection is too costly for my business
Most debt collection agencies operate on a contingency fee basis, meaning they only get paid when they collect. Some have different business models that may call for a flat fee for their service. Professional debt collection firms strive to provide measurable value to their customers and work to collect money so that the creditor lowers account receivables. Collecting some debts may not be financially feasible, but professional debt collection services are usually reasonably priced.
Businesses are better off taking a tax write-off than collecting
Charging off debt may be a good option for a creditor for accounting purposes, but it doesn’t return cash to the creditor’s business. Collecting can create cash flow where none existed before.
Collection Agencies will make me lose clients
Collection Agencies follow a very diplomatic approach, they know that debtors are not too happy once they get to know that their account has been forwarded to a collection agency. Seasoned debt collectors work with your debtors/clients in a very amicable yet firm manner. Their diplomatic approach ensures that clearing your debt becomes their number one priority. A debt collector has many strategies to help you close the account in an amicable fashion. They are trained well to ensure that your brand image is not tarnished. Well no one can guarantee, but an amicable collection agency attempts to preserve relationships.
Collection Agencies are cumbersome to work with
It is exactly the opposite, Collection Agencies are designed to take away your accounts receivable headaches. Most good collection agencies have a website, using which the accounts can be submitted. They can deposit money in your bank account or send a check once payment is collected. Collection agencies work as an extension to your accounting department and an experienced representative who will answer all your queries.