Once you approach a Collection Agency, they will
- Have you signup a contract after explaining all their services.
- Setup your preferences such as Mode of Payment/remittance for the amount collected ( send you a check or direct deposit in your bank account).
- Do you want accounts to be reported to Credit Bureaus or not.
- After unsuccessful contacts, should they transfer unpaid accounts to their next service automatically or not.
- Finally provide you the email and phone number of Client Support if needed.
When an unpaid debt is assigned to a Collection Agency, they will run the following checks on each account assigned (regardless of the service selected):
a) Bankruptcy Scrub: To check if the debtor has been legally discharged of his debts by a court.
b) Address Scrub ( or Skip Tracking): To find out the latest address and the phone number of the debtor.
c) Statute of Limitations check: A debtor cannot be sued in court after certain number of years. This varies from 3 to 10 years depending on which state the debtor resides. Most agencies will not attempt collections on on these time barred debts.
d) Litigious debtor check: This check is done by very few agencies, wherein they check if a debtor has a history of filing lawsuits. They either do not attempt collections on these accounts, or suggest an alternative approach.
e) Debt dispute period: Debtor has about 30 days to dispute a debt after the first contact is made by the collection agency. If a debtor indeed disputes the debt, the client/creditor must provide the statement / invoice /signed contract which proves the validity of debt so that collection activity can proceed. One should not even think of assigning an account for collections if backup documentation is not available.
Next, depending they type is service enrolled, different things can happen.
1. Collection Letters Service (Fixed Fees Service)
A creditor typically purchases accounts (for roughly $15 per account) from the collection agency. There is no other collection fees charged from the client beyond this flat-fees. Debtor pays the client/creditor directly. A collection agency will send up to 5 demand letters and verbiage of these letters start from “diplomatic/amicable” to slightly intensive with every passing letter. Verbiage can also vary depending on the industry of client (small business debt, medical debt, dental debt, bank debt or insurance debt). Client must notify the Collection Agency if a payment is received so that further demand letters are stopped.
2. Collection Calls Service (Contingency Fees)
Collection agency will typically do an “advanced” skip tracing to locate the debtor more accurately. Whatever is collected, a Collection agency keeps a percentage ( typically 35%-45%) of the money recovered. No recovery means no fees. Debt collectors will try to collect 100% of the amount due in full in “one-go” or by putting debtor in an “installment plan”. They may also report the unpaid debt to Credit Bureaus if collection efforts fail. They will call the debtor multiple times in accordance to the FDCPA debt collection laws. Good debt collectors are able to handle debtor excuses very well and know how to talk around those excuses. They are expert at the art of collecting debt, after all that is what the collectors do all day long.
3. Legal Collections ( Contingency Fees)
Typically, no more than 5% of all accounts assigned ever make it to the legal collections. A collection agency will inform the client/creditor before transferring this account for legal collections or make this a part of your contractual agreement. They may attempt to garnish debtor’s wages, attach assets or put lien on the debtor’s house while attempting to get a favorable judgment. Collection agency may even try to add the lawyer fees on top of the amount owed, but it is up to the judge to accept it or not.
Hope this gives you a fairly good idea on how a Collection Agency works.
If you are looking for a cost-effective collection agency Contact us and we will connect you to a good one based on your requirements and industry.