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It isn’t uncommon for people to have unpaid debt wind up at a Collection Agency. Sometimes they forget that they have an outstanding balance and other times, they simply don’t have the money to pay the lump sum.

If you are a business owner, you may have been forced to make the difficult decision to send your delinquent customer or a business partner to a debt collector.

Most B2C debt is transferred to a collection agency after 60-90 days of non-payment. Most B2B partners try to postpone making this move, but if they are dodging your requests for payments, you may have not have had any other choice. The question is, will this move ruin your business relationship?

Debt collectors are often met with a negative connotation. Your delinquent customer or a business partner probably won’t be happy to learn that you sent their balance to a collector. The good news is, debt collectors use a diplomatic approach specifically so that your business relationship remains in good standing. They understand the importance of business relationships and work hard to preserve it. They will work with the debtor in order to consolidate or get rid of their debt entirely.

To get a full grasp of this concept, let’s look at how a collection agency works in order to determine how it affects your business relationship.

Understanding How Debt Collectors Work

If you decide to send someone’s unpaid balance to a collection agency, they will be immediately notified; usually via phone call or a collection letter. These contacts are often met with apprehension because being sent to collections can possibly effect the debtor’s credit score if the creditor has requested the collection agency to report the debt to the credit bureaus. And, naturally, this can ruin their chances of getting a car, a house, or a business loan.

When Debt Is Sent To Collections

It’s difficult to know when it is time to write off the unpaid debt as a loss. If you have been working with your business partner for some time, you may wait for months or even years before you decide to send their debt to collections. However the chances of recovering the past due amount go down by about 10% each month. The longer you wait, higher the chances are that you will never recover your money.

There is no set dollar amount or time frame that depicts when it’s time to write off unpaid balances. If you get the impression that your partner isn’t going to pay off their capital or they haven’t made an effort to set up payments, you should absolutely cut your losses.

Debt can be sent to a collection agency 31 days past the due date, though many wait until after three to six months of nonpayment. It is recommended to use Debt Collection Letters after 60 days past due date. If the debt is over 120 days or more past due then go for the Collection Calls service.

How It Affects The Debtor’s Credit Score

Not everyone’s credit score is affected unless the original creditor instructs the collection agency to report the debt to the credit bureaus. Generally speaking, those with higher credit scores are often penalized more points than those who have a lower credit score. The amount owed will also determine how many points will be shaved off their credit score.

How A Collection Agency Will Approach Your Delinquent Customer or Business Partner

If someone owes you money, knowing how collection agencies approach debtors can help you rest easy about your decision. In the past, the tact of a debt collector was to make relentless phone calls demanding payment. And if you’re looking to maintain your business relationship, having put your partner in this situation is obviously going to cause some tension.

However, now with the Fair Debt Collection Practices Act (FDCPA), agencies use a more subdued approach when contacting your partner or associate.

Talk To Your Associate First

As the original creditor, you can only send someone to collections 31 days after the payment is past due. The best practice to maintain your business relationship is to talk with your associate first. Have a system in place to send out reminders that payment is due. This includes regular emails, phone calls, and other points of contact.

Approaching your associate about their late payment first can help preserve your relationship. This is recommended instead of sending them straight to collections without warning or notice of this action.

 The Fair Debt Collection Practices Act

This act was created once it had been made clear that, “Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.” Along with other reasoning established in this act, debt collectors may not be abusive or vexatious when approaching debtors.

Instead, collection agencies will approach your partner in an amicable way. They may even give guidance on setting up payments to their debt. With these practices, you can rest assured that sending someone’s debt to an agency should not ruin your business relationship. We only recommend notifying your business associate first and educate them on your impending decision to write off their debt. Once you’ve made your decision, the debt agency will take the reins to help settle the outstanding balance.

Conclusion

No Collection Agency can guarantee that your business relationship with the debtor will remain intact during the collection process. However, this article simply conveys you that all good collection agencies use diplomatic and an amicable way to collect a debt, rather than the common notion that debt collectors are intensive, abusive or threatening. This drastically ups the chances to retain your business relationship. If any agency uses threat tactics, it just violated the debt collection laws.

Collection agencies must follow specific federal and state laws when contacting individuals regarding debt collection. These laws are enforced to protect debtors from potential harassment by Collection Agencies. Not following these laws can result in penalties, lawsuits, and other legal implications. Proper training for debt collectors is mandatory and can save thousands of dollars in fines later. The most common federal laws that collection agencies need to follow are FDCPA, GLBA, TCPA, HIPAA and FCRA.

Note: We have tried to keep this information short and reasonably accurate, but as you can imagine, there are extensive details behind these laws. We recommend you use this article only for your basic understanding and visit the relevant government websites or an expert lawyer for the most up-to-date information and all those extensive details. 

FDCPA (The Fair Debt Collection Practices Act)

This federal law enforces limitations on what debt collectors can say or do when collecting certain types of consumer/individual debt (B2C collections). The FDCPA prohibits debt collection agencies from using abusive, unfair or deceptive practices to collect debts from a debtor. The FDCPA does not cover business debts (B2B collections).

Suppose a consumer sends a written dispute or request for verification within 30 days of receiving the notice. In that case, the debt collector must either mail the consumer the requested verification information or cease collection efforts altogether.

A debt collector cannot:

•  Continue to call a debtor after they notify the collector to stop contacting them. But this does not prevent the debt collector from pursuing other legal ways to collect money, including a lawsuit or reporting this debt to a credit reporting company ( Like Equifax, Experian or Transunion).
•  If a debtor has requested a collection agency to validate the debt, they are being contacted or pushed hard for debt collection during the validation period.
• Calling a debtor before 8:00 A.M and after 9:00 P.M. local time is prohibited.
• Using foul language or blackmailing the consumer.
• Threatening to arrest, file police complaint, informing the employer and threatening of other legal actions.
• Reporting false information to the consumer’s credit report.
• Contacting a debtor at work ( despite the debt collector knowing that a debtor is not allowed to receive such communications at work).
• Call or engage any person in telephone conversation repeatedly or continuously.
• Call the debtor’s friends or coworkers regarding the debt or discuss anything related to the debt with them.
• Attempts to intimidate the debtor are not permitted.
• Threaten the consumer with negative credit reporting.
• Make automated robocalls in an attempt to collect.
• Seek an unjustified amount.
• Use obscene or profane language, racial slurs or insulting remarks.
• Representing that the consumer has committed a crime or disgraceful conduct.
• Not disclosing that he is only a debt collector, or falsely representing some other entity (ex: IRS, FBI, Police, etc.) to pressurize the debtor to pay.
• Fair Debt Collection Practices for Service-members Act (H.R. 5003) protects the defense service-members more than civilians.

If a debt collector knows that an attorney is representing a debtor about the debt, the debt collector must directly contact the attorney instead.

A debt collector cannot sue a debtor in court after the statute of limitations has expired. These are usually between three and six years.

GLBA: (Gramm-Leach-Bliley Act)

As per FTC, starting June 9, 2023 all collection agencies will be treated as financial institutions. This means all collection agencies must secure consumer data nearly the same way as banks.

Failure to comply with GLBA can have severe consequences for the collection agency, especially the owners and the higher management. Each violation can result in fines of up to $100,000 and may extend to criminal penalties.

FCRA: (Fair Credit Reporting Act)

This law governs how the debt should be reported to the credit reports. A collection agency will typically require a creditor to provide “SSN” and/or “Date of Birth” of the debtor to ensure they do not place this debt on some other person’s credit report.

This legislation was enacted to promote the accuracy, fairness and privacy of consumer information reported to the consumer reporting agencies. It protects consumers from the willful and/or negligent inclusion of inaccurate information in their credit history reports.

Three major credit bureaus are Experian, Equifax and Transunion. A 180-day waiting period exists before unpaid medical debts can appear on people’s credit reports.

New Consumer Financial Protection Bureau (CFPB) Rules – Nov 30, 2021

Broadly speaking, Collection agencies must contact the debtor first through phone, mail, message or other electronic media and give them sufficient time to respond ( typically 15 to 30 days), before the debt can be reported to Credit Bureaus. This is good because several collection agencies have unfairly started using credit reporting as a tool to recover debt. They cannot threaten to recover a debt that is uncollectable or if it has hit the Statute of Limitations. They must also provide disclosure information on their demands and list all payments, interests from the Date of Debt or service.

TCPA: (Telephone Consumer Protection Act)

This federal law is designed to safeguard consumer privacy. It restricts telemarketing communications via voice calls, SMS and fax. It also applies to debt collections, meaning they cannot call the debtor’s cell with an auto-dialer, or call his cellphone unless the collector has the debtor’s permission to call his cell phone.

Even if a debt collector calls on a debtor’s cell phone, they have the right to tell the caller not to contact them. It is recommended to notify your contacting preference to the collection agency in writing with a letter sent by certified mail. Calls to cellphones using robocalls or pre-recorded voice without consent are also illegal. Voicemails in which the debt collector speaks about the debt you owe are not permitted because other people can listen to them.

The TCPA prohibits any telephone solicitation before 8 a.m. and after 9 p.m. local time. A penalty can be imposed, ranging between $500 to $1,500 per call or text. There are also laws around the DNC (do-not-call) list that a debt collector must follow.

HIPAA: (Health Insurance Portability and Accountability Act)

This legislation provides data privacy and security provisions for safeguarding medical information, including the medical condition of a patient (or debtor). HIPPA laws do not protect a patient from his billing information being shared with a Debt Collection Agency since that forms the basis of all recovery efforts and verification of the debt if required.

The exact nature of services received by the patient is considered his private information; therefore, full medical records cannot be submitted to a collection agency. Debtors who discover that the collector knows too many details of his diagnosis and treatment may file a complaint with hhs.gov in the context that their privacy has been violated. This complaint must be filed within 180 days of the violation. Office for Civil Rights (OCR) may ask the debt collector to take a corrective action or impose civil money penalties.

State Debt Collection Laws:

Many states have also enacted their own laws to protect consumers who are dealing with debt collectors; sometimes, it includes original creditors too (first-party) and not just the collection agencies (third-party). Debt collection is very tricky and better left to the experts.

California Fair Debt Collection Laws
Rosenthal Fair Debt Collection Practices Act, is California’s version of the Fair Debt Collection Practices Act (FDCPA). Rosenthal act provides consumers protection from first-party creditors as well.

Florida and Colorado Fair Debt Collection Laws
It prohibits debt collectors and creditors from using deceptive and abusive tactics to collect debts.

Georgia Fair Debt Collection Laws
The Georgia Industrial Loan Act applies to consumer loans less than $3,000 with a loan length less than 36 months and 15 days.

Illinois Collection Agency Act
The Illinois collection agency act (ICAA) requires all debt collectors to have a license before being operational.

New York City:
Debt collectors must be licensed as debt collectors by the NYC Department of Consumer Affairs and cannot call the debtor more than twice a week about a debt.

Louisiana also has Fair Debt Collection Practices Act § 3552 and 3562

Not all states and cities specific debt collection laws have been covered here.

Source / References used:
https://www.consumerfinance.gov/ask-cfpb/are-there-laws-that-limit-what-debt-collectors-can-say-or-do-en-329/
https://en.wikipedia.org/wiki/Fair_Credit_Reporting_Act
https://en.wikipedia.org/wiki/Fair_Debt_Collection_Practices_Act

Debt collection agencies play a vital role in managing the accounts receivable of drugstores.

The in-house staff of drugstores has excellent knowledge about medicines and other core responsibilities required for the smooth functioning of the pharmacy. However, they are not experts when forced to become part-time debt collectors, calling patients to make a payment on their past-due bills. Therefore these overdue bills are often overlooked or not given a proper follow-up.

Collection agencies have been serving the drugstore and pharma industries for decades. Typically, those accounts which are not paid in full are transferred to a debt collection agency after 60-90 days of non-payment.

Serving Pharmacies Nationwide Need a Collection Agency? Contact Us   Pharmacies want a collection agency that:  Protects brand reputation and customer relationships. Compliance with healthcare and collection regulations (HIPAA, FDCPA). Minimizing financial losses from unpaid balances. Ensuring patient data privacy and security. Reducing administrative burden on internal staff. Partnering with agencies experienced in healthcare collections. Maximizing recovery rates with minimal legal complications. Maintaining a professional and ethical approach to collections. Preserving patient access to future services. Controlling costs associated with debt recovery.

Collection agencies send five diplomatic letters to recover the money from the patient. If the amount is still unpaid, it is moved to the next step, where an expert debt collector calls the customer and attempts to recover money diplomatically yet firmly. Your collection agency must have a proven track record of working with pharmacies/drugstores and must be able to provide references if requested. Free credit bureau reporting can be done once the debt is 180 days old.

Accounting and bookkeeping are some of the most challenging tasks of running a pharmacy. Insurance companies themself use third-party prescription software like Express Scripts which are billed when a prescription is filled, these need to be taken care of at the pharmacy, then check if the payment was processed or denied or if a co-pay is required. There are days when only one person (the pharmacist) is available at the pharmacy. Apart from core responsibility, the pharmacist also needs to have a deep understanding of the billing system. Some patients even transfer their prescriptions or get a new prescription to avoid paying their bills. As per federal law, medical debts cannot hit the debtor’s credit report before the debt is 180 days past due. Additional rules have been recently imposed by credit bureaus themself.

Pharmacies should enforce that the patient must sign a “charge account contract” if they are not paying in full. This document can be very beneficial during the collection process.

Collection Letters Service

The upfront cost for 5 Collection Letters is about $15 per account. Debtors pay directly to you, no other fees and a low-cost option. Good for accounts less than 120 days past due.

Collection Calls Service

Contingency fee only. No upfront or other fees. Agency gets paid a portion of the money they recover.  No recovery-No fees. Best suited for accounts over 120 days. A debt collector calls debtor many times. If everything fails, a possible Legal Suit is recommended by the attorney.

While pharmacists concentrate on running the pharmacy, a collection agency will collect money from accounts receivable, saving significant time and resources. Apart from being HIPAA compliant, they must maintain a professional and positive approach.