Debt Recovery

How to make a Perfect Collection Call?

According to the annual CFPB 2017 report, there were 130,000 people employed by 6,000 collection agencies in the “13.7 billion dollar industry”. Although the base salary of a debt collector is low (or none), he (or she) can earn a lot in commissions based on the amount of debt he collects. In this article, we assume that the reader of this article (you) is a debt collector.

Related article: Top debtor excuses and how to handle them

This is a fairly long and comprehensive article. We have attempted to make it as informative as possible.

Best case scenario:
Some individuals did not pay because they simply did not realize the seriousness of not paying the bill till they heard from a debt collector, or they had simply forgotten to clear the dues. This happens more often than you would think. Lucky for you, such cases can often be cleared amicably in a single call.

1. Prerequisites

a) Prepare your mind:
Before making a collections call, ensure you are fully relaxed, regardless of how bad your last collections call was. Tell yourself, “I will remain calm during this call, no matter what“. Let’s agree that a collections call from a debt collector is the last thing anyone wants to receive on any given day. About half of the debtors (or less) will talk to you properly, others will give you excuses, and some may even be nasty or abusive. Do not let any of this impact you. It’s a part of your job. Laugh it off after the call is over. The debtors need to understand that you are calling to work with them, not against them.

No checking Facebook, WhatsApp, Instagram, News or Sports during the call. Keep your cell phone aside and avoid surfing the internet. Stay focused and Listen carefully.

b) Yes, some debtors owe nothing. Your data could be incorrect or outdated:
Accept it, there is a possibility that the debtor might have already paid the debt, just that you are unaware of it or your corporate system is not up to date. In such cases, take whatever payment proof the debtor can provide and end the call nicely. Get the payment proof validated.

Collection calls are commission-based. The collection agency gets paid only when the debtor makes a payment. The debtors are ideally required to pay the collection agency directly, and then the agency remits the amount back to their clients after deducting their collection fees. Occasionally, debtors pay directly to the clients; in this case, the clients must pay the collection fees back to the agency. Your client could have just forgotten to inform you guys about this payment. Rarely, but you may come across some sneaky clients who intentionally do not tell you about the amount they have received, hoping to avoid paying your collections fees.

And lastly, it is possible that the person does not owe the debt or is protected since he is legally bankrupt. The debt could also be past the Statute of Limitations (SOL). Clarify your company’s policy when handling such accounts.

c) Inaccurate billing by clients:
Inaccurate billing and overcharging is other big complaint from debtors. This is particularly common in the insurance industry and phone and cable companies. These clients generally have no problem paying off the debt, provided the bill is fixed per their understanding. Listen to the debtor. If he sounds genuine and the difference is large, then discuss the matter with your supervisor after the call for a further course of action. At times, the debtor owes a lower amount or nothing.

d) Be Professional, Confident, and Somewhat Authoritative:

Imagine the debtor is sitting in front of you. Your attitude should be somewhat similar to a recruiter. Personally, whenever I have taken a job interview, I tend to be in my best behavior, and act professionally yet authoritatively.

Be polite, a debt collector does not have the option to get angry. He should also avoid using any “Sense of humor” during the call. Something may be funny for you but may be offensive to the debtor. It is a good practice to keep a smile on your face while making these collection calls. It helps to maintain a positive attitude. Never eat or drink during the call.

e) Compliance:

Be aware of the FDCPA laws (Fair Debt Collection Practices Act) and other applicable state laws. Never cross those limits. Other laws like HIPAA or TPCA may also apply.

f) Review all the documents that you have before the call:

Scanning the related documents once you are on the phone with the debtor will look unprofessional and unprepared. Here is some minimum information you should have before making the call.
* Exact amount owed
* What services and products were sold, and on what date?
* Date when the payment was due.
* Payment terms and any other supporting documents.
* A summary of previous communication between your client and your collection agency.
* If any payment has been made so far.
* Are you permitted to settle the debt for a lower amount?

Many debtors crosscheck the information a debt collector has about the debt to fend off the collector. But if within the first 30 seconds the debtor strongly feels that the collector must have sufficient information about the debt, he will likely not go into further details, the tide will quickly turn from interrogation to how the debtor is going to pay.

g) Maximum time for the call:
Do you want to spend the same time collecting on a debt that is $100 vs which is $1000, probably No? You do not want to spend too much of your and the company’s time on a small debt. If the collection call on a lower outstanding debt happens to go for a longer time than anticipated, and it is still unclear whether the call is going productive or not, try to get the debtor back from auxiliary discussions or end the call nicely, and possibly call the client at a later time. Try to keep your call short but effective.

2. Starting the call – First thing first:

a) Are you talking to the right person:

By law, you are not allowed to discuss collection matters with anyone other than the debtor himself (or the co-signer of the debt if the debtor is unreachable/unable to pay). This is also called the No-Third party disclosure law. Ensure that it’s the right person on the other side. Some debt collectors verify customers by checking their last four digits of SSN or address. Start your call by speaking clearly and confidently, neither too loud nor too soft.

b) If someone else picks the call:
If the person on the phone does not know the debtor, then the debtor’s contact information may have changed. You may need to do an advanced Skip Tracing to locate the debtor.

If this other person asks what you are calling about, you can simply say it’s regarding some business matter. In case it’s the debtor’s correct number, just that he is not available at the moment, you can either call at a later time or politely leave a message with your name and number and request them to pass it to the right person.

c) Landline or Cell Phone
It is always beneficial to be aware if you call on the debtor’s landline, cell phone, or work phone. FDCPA Collection laws are more strict when calling on the cell phone. In some states calling on the cell phone is prohibited by default, unless the debtor has permitted you.

d) Voicemail
You can leave a voicemail but do not mention that the call is regarding a past-due bill because if it is a shared voicemail box, then you can potentially disclose the debt to an unrelated person and violate FDCPA. Leave your name and number and request the debtor to call you back.

Good morning, my name is [ your name]. We have an important message from [company name] for [Mr. John Doe]. Please call [company’s telephone number] and mention the reference number [***xyz] when you call us back.

3. Your collection call starts now:

a) Address the debtor by his First Name, and avoid using words like “Sir / Mam / Bro/ Buddy / Sis”.

b) Tell the debtor that this is an attempt to collect a debt. Any information obtained will be used for collection purposes only. Some debt collectors record collection calls.

You must legally disclose that you are a debt collector and calling regarding an unpaid bill.

A little off the topic – These states require All-Party Consent if the call is recorded. (Washington, Pennsylvania, New Hampshire, Nevada, Montana, Michigan, Massachusetts, Maryland, Illinois, Florida and California.) This list could have changed by now, but overall your agency will make you aware of their call recording procedures and/or if you need to ask the debtor’s permission before recording the call.

c) Then you let them know who your client is, and from whom you got the actual debt ( the original creditor).

d) Make them aware that the client has legally authorized your collection agency to collect the debt on their behalf.

e) Then, immediately, ask the debtor how they would like to pay. Most collection agencies will accept payment over the phone. Get ready for all kinds of debtor excuses. Most likely, the debtor will tell you the reason for non-payment, but if they do not, ask them.

f) If you end the call without getting a payment or without a commitment to the payment date/amount, that call has been wasted.

g) Sound serious about getting the payment. If you do not show seriousness and haste, the debtor won’t get serious either.

h) You can indirectly have the debtor accept the debt by asking, “Do you have any more questions regarding this debt?”

i) If the debtor says that he will make payment at a later date, then immediately ask him it will be by Check, Credit Card over the phone, Money order, (or other options like Western Union). Most debtors reply that they will mail a check and ask which Bank/Credit Union they will use. All this will reflect how serious you are about paying the bill off. If the debtor demands a return envelope to make the payment, confirm their latest mailing address. In fact, sending a payment envelope is encouraged as an additional payment reminder.

j) If the debtors say they do not have money now, ask them when they will get their salary. Tell them to remit the following day and if they can call you to confirm when the payment has been sent. Besides asking open-ended questions to get as much information as possible from the customer. to nail down a commitment eventually.

k) Many debtors will start explaining their financial hardships, although they may be correct but do not fall for those and yet do not appear indifferent. Take a middle route – “I understand why you are feeling this way“.

l) Try to finalize the payment arrangements. If the debtor cannot pay a lump sum, then offer them to pay in installments. “To prevent you from going further into the debt, I can offer you to make payment in installments“.

m) If the debtor is unreasonably aggressive or angry, ask them, “It appears that have called you at a wrong time. When will be a good time to call you again.”

n) Take short notes, so you can recall what happened during the call. It will also help you to pinpoint if the debtor changes his story in the next call. Before the call ends, let the debtor know you have taken notes from this call. All this conveys your seriousness in collecting the debt.

o) Give a short pause after your questions, especially when you ask for the payment arrangements, and allow the debtor to speak. Short silences are a powerful tool in debt collections; they will likely spill vital information.

p) Debtors may get angry, emotional, embarrassed, and even yell at you. Remember to stay calm and focused. Over time you will get immune to all these things. But, you can never threaten a customer. Making false statements like “You can go to jail” or “We know how to get money out of people like you” is completely prohibited.

q) If the debtor is unwilling to pay at all, politely let him know the consequences of not paying the debt, including entry of this unpaid bill on his credit history.

Read your company’s policy before telling the debtor that “this account may be transferred to the legal team” is acceptable or not. If debtors feel they are about to get sued, they will also contact a lawyer making your collection efforts even harder.

r) The debtor has the right to tell you never to call him. He can also tell you to perform all collection activities in writing rather than a phone call. These are his legal rights.

s) Lastly, if the collection call is unfavorable, try to end the call rather than hanging up intelligently. This will help avoid making matters worse.

4. After the call ends:

a) Finalize/formalize your notes from the call, including dates on which the debtor has agreed to send money.

b) Most debt collectors become better over time. Do not hesitate to ask your co-workers (collectors) how they would have tackled a situation that you could not handle well during the call.

c) If you unfortunately/mistakenly violated any collection laws or yelled back on the debtor, make your supervisor aware immediately before the situation worsens. Any unfortunate/critical situation should be documented and communicated to your supervisor immediately.

d) Tell yourself to contact the debtor on the date on which you agreed to talk again or when the payment is supposed to be made. Regular follow-ups will maintain the pressure on him.

5. Debtor’s Legal rights:

a) Beware, the debtors are more aware of their legal rights than ever. There is an unlimited supply of articles and videos telling the debtor how to escape from making payments. Many of these videos provide valid information but more often than you think, these videos go overboard and end up providing misinformation. People posting these videos are often not even associated with the collections industry or lawyers. Their experience and suggestions may not fully fit with the debtor’s situation. They often arm themself with this misinformation and argue with you unnecessarily.

Even the state collection laws vary largely by state, which these videos do not discuss. Many people post these misguided videos just to make money out of advertisements, nothing else. So yes, there is pretty good information online regarding the debtor’s rights, but there is an equal amount of incomplete/misinformation out there that a debtor may not realize.

Then some lawyers make a living by filing lawsuits against the collection agencies. Many debtors are so loaded up with information (and misinformation) that they may start sounding attorneys themselves.

b) According to consumerfinance.gov, the debtor has the legal right to ask you these things:

* Identity of the debt collector, including name, address, and phone number
* The amount of the debt, including any fees such as interest or collection costs
* What the debt is for and when the debt was incurred
* The name of the original creditor
* Information about whether you or someone else may owe the debt

The debtor can also tell over the phone or send the collection agency in writing:

* I do not owe this debt.
* I need more information about this debt.
* I want the debt collector to stop contacting me.
* I want the debt collector only to contact me through my lawyer.
* I want to specify how the debt collector can contact me.
* Dispute the debt itself within 30 days of the first contact.

A debt collector needs to be flexible and handle situations smartly and diplomatically. A collections call is never easy. There is no magic wand to collect a debt.

The information presented here is not a piece of legal advice or something which fits all situations. There are way too many situations and laws beyond what has been covered above. A large portion of this article is based on my co-workers’ feedback during my last 20 years in the collections industry.

We would appreciate your feedback on this article and how to enhance it further.

References:
https://www.consumerfinance.gov/ask-cfpb/what-should-i-do-when-a-debt-collector-contacts-me-en-1695/

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 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 (if permitted by the state laws). 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	Oral Contracts	Written Contracts	Promissory Notes	Open-Ended
Alabama	6 years	6 years	6 years	3 years
Alaska	6 years	6 years	6 years	3 years
Arizona	3 years	6 years	6 years	3 years
Arkansas	3 years	5 years	5 years	3 years
California	2 years	4 years	4 years	4 years
Colorado	3 years	6 years	6 years	6 years
Connecticut	3 years	6 years	6 years	6 years
Delaware	3 years	3 years	3 years	4 years
Florida	4 years	5 years	5 years	4 years
Georgia	4 years	6 years	6 years	4 years
Hawaii	6 years	6 years	6 years	6 years
Idaho	4 years	5 years	5 years	4 years
Illinois	5 years	10 years	10 years	5 years
Indiana	6 years	6 years	10 years	6 years
Iowa	5 years	10 years	5 years	5 years
Kansas	3 years	5 years	5 years	3 years
Kentucky	5 years	10 years	15 years	5 years
Louisiana	10 years	10 years	10 years	3 years
Maine	6 years	6 years	6 years	6 years
Maryland	3 years	3 years	6 years	3 years
Massachusetts	6 years	6 years	6 years	6 years
Michigan	6 years	6 years	6 years	6 years
Minnesota	6 years	6 years	6 years	6 years
Mississippi	3 years	3 years	3 years	3 years
Missouri	5 years	10 years	10 years	5 years
Montana	5 years	8 years	8 years	5 years
Nebraska	4 years	5 years	5 years	4 years
Nevada	4 years	6 years	6 years	4 years
New Hampshire	3 years	3 years	6 years	3 years
New Jersey	6 years	6 years	6 years	6 years
New Mexico	4 years	6 years	6 years	4 years
New York	6 years	6 years	6 years	6 years
North Carolina	3 years	3 years	5 years	3 years
North Dakota	6 years	6 years	6 years	6 years
Ohio	6 years	8 years	15 years	6 years
Oklahoma	3 years	5 years	5 years	3 years
Oregon	6 years	6 years	6 years	6 years
Pennsylvania	4 years	4 years	4 years	4 years
Rhode Island	10 years	10 years	10 years	10 years
South Carolina	3 years	3 years	3 years	3 years
South Dakota	6 years	6 years	6 years	6 years
Tennessee	6 years	6 years	6 years	6 years
Texas	4 years	4 years	4 years	4 years
Utah	4 years	6 years	6 years	4 years
Vermont	6 years	6 years	5 years	3 years
Virginia	3 years	5 years	6 years	3 years
Washington	3 years	6 years	6 years	3 years
West Virginia	5 years	10 years	6 years	5 years
Wisconsin	6 years	6 years	10 years	6 years
Wyoming	8 years	10 years	10 years	8 years

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. Medical debts are removed from credit reports when paid.

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.

Video:

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 choosing a trustworthy business partner, one that understands the importance of protecting your reputation throughout the collection process. 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 greatly differs 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. Credit reporting laws vary by industry and each state has different statute of limitations. 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 support team.
It should have good Google reviews. More than 4 out of 5 stars.

2. Reputation on Google Reviews & 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 essential 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 type of debtors you have.

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

All collection agencies must follow the 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 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 shift 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. Do they have a digital insurance?

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 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 on 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 fully understand the collection agency’s fee structure. 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 inform you 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 (GLBA/ 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 integral 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 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 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 prepaid-accounts remain valid after purchase?

The accounts you buy for written contacts 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 highly cost-effective. Core collection calls made by a debt collector are contingency-based and are an excellent deal for the collections company but not you. So if the age of your accounts is within 120 days and you are still being pushed for contingency collections by their salesperson, think twice. Understanding all the types of Collection Agency services and collection costs are essential.

Note:

We have listed a lot of selection factors above. Even an excellent collection agency may not be able to fulfill all points discussed above, which does not make them wrong or inferior. But this list will help you create 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 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 your collections agency asks.

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).

How do Debt Collection Agencies work?

Collection agencies are specialists in debt recovery. Their highly trained and well-equipped teams can successfully collect even from accounts that are typically difficult to recover. When in-house staff struggles to collect overdue accounts, businesses often turn to professional collection agencies for assistance.

Collection agencies play a vital role in the financial ecosystem. Without their involvement, many outstanding debts would remain unpaid, resulting in significant losses for businesses and medical practices. While no collection agency can guarantee the recovery of 100% of the assigned debt, they employ proven strategies and work diligently to collect as much as possible. In fact, a single call from a professional debt collector can have a greater impact on a debtor than repeated attempts from in-house staff.

Types of Debt Collectors:

1. “Collection Agencies” – Agencies that act as a middleman between the creditor and debtor using standard recovery techniques. They attempt to collect the debt in full. Some agencies operate in one state only while others have a nationwide license.

2. “Debt Buyers” -Debt buyers buy debt that is deemed unrecoverable. Debt buyers buy unpaid accounts by paying pennies on the dollar and readily agree to settle the debt even if a way-lower payment is offered.

3. “Collection Lawyers“: Unlike Collection Agencies, they do not have a single collections approach for all accounts. They study each case, give a customized solution and quote a fee accordingly.

Here is a detailed explanation for each of them.

1. Collection Agencies

When a creditor approaches a collection agency, he is offered three types of collection services: Collection Demands (Letters), Collection Calls and Filing a Legal Suit.

a) Collection Letters (Fixed Fees Service- Accounts purchased in advance) – A collection agency sends up to 5 collection letters to a debtor and charges between $10 to $25 upfront per account for this service. Collection letters are sent every ten days or so. They run a “USPS-Address-Change” scrub on these accounts to ensure the letters are mailed to the latest address of the debtor. This is also called skip tracing.

They also check if the agency/creditors are legally prohibited from collecting a debt. For example, when a debtor has been granted bankruptcy protection or if he has deceased.

During the Collection Letters service, all amounts go directly to the creditor, the collection agency keeps nothing other than the small flat fees they had charged earlier (roughly $12-$16 per account). You can also add the late fees to the amount due if your contract permits.

The creditor must report all payments made by the debtor directly to them so that the Collection Agency can print the correct (lower) outstanding amount on the remaining letters. They will stop sending letters if the amount has been Paid in Full or deemed uncollectible through written demands and may require stronger action.

Collection Letters service is usually recommended for debts that are within 30-120 days past-due date. They give far superior results than your own in-house collections. You may check our sample debt collection letters to get an idea of what the debtor receives from a Collection Agency.

b) Collection Calls (Contingency-based, No Collection – No Fees) – This is where an actual human being (debt collector) picks up the phone and starts making phone calls to the debtor. This is a contingency-based collections service and is usually recommended for debts older than 120 days, or if the Collection Letters service did not recover the debt.

A Collection Agency would usually not accept an account for collections if the debt is older than 3 years. They also specify the minimum amount of debt that can be assigned for this service, usually, there is a $100 is the cutoff limit.

With their extensive experience, debt collectors are able to make a perfect collections call. They are able to handle debtor excuses way more professionally, patiently, and smartly than your own employees. Most agencies hire multilingual staff to handle Spanish collections if required.

The collection agency keeps 33% to 50% of the amount collected per your agreement and passes the remaining money to you (the creditor). Do not always fall for those ultra-low-cost collection agencies, because their recovery rates may be a lot lower. If a collection agency is near you do not hire them just because of that reason, in debt collections, the location does not matter.

Hiring a good collection agency is really important to get superior collection results.

c) Filing a Legal Suit (Contingency based) – This is the third type of collection service where a Debt Collection Agency’s attorney (or a partner attorney) sends legal notices to the debtor. The attorney may even try to collect the outstanding amount against the assets of a debtor or garnish his wages. Assets could be the debtor’s bank account, brokerage account, and even against certain types of real estate that the debtor may own.

Collection agency usually takes a cut of around 25%-40% for these kinds of cases. These accounts should carry high-value debts to justify the cost of hiring an attorney.

Collection fee can be negotiated with the collection agency in case the outstanding amount is in thousands of dollars or if it is a B2B debt (commercial/business debt).

In the case of B2C debt (individual/consumer debt), there is usually no room for negotiation. Individual debts are harder to collect, and unlike B2B accounts the B2C debts are subjected to far more stringent collection laws.

2. Debt Buyers:

Debt Buyers purchase bad debt in bulk and pay a little money to the creditor for it. The collection activity starts after the purchase. For example, if the outstanding debt on an account is $1000, a Debt Buyer may buy it for $50 only. Accounts are usually settled at a lower price point. For example using the above scenario: A debt buyer will happily settle the account even if the debtor offers to pay $200, for a nice $150 profit. The Debt Buyer keeps 100% of the money recovered, and does not need to share anything with original creditors.

3. Collection Lawyers:

A collection agency does not always do collection activity, many lawyers are in this industry as well. They study each case, give a customized solution, and quote a fee accordingly. In this case, a debtor will receive a legal notice or a phone call from the lawyer’s office. If there is a co-signer on the debt, the collection activity can also be made on the co-signer.

Fair debt collection laws:

There are several “Consumer protection laws” and the “Fair Debt Collection Practice Laws” that all debt collectors are supposed to follow during consumer collections. Here is the list of all debt collection laws.

A debt collection agency should be respectful, law-abiding and truthful. They should not discriminate against people based upon gender, race, age etc. They should not contact you in odd hours, like late evenings or very early mornings. They cannot try to threaten you bypassing statements like “If you do not pay, the police will arrest you“.

If the collection agency determines that the debtor cannot pay the debt in full, they can settle an account for a slightly less payment if the creditor allows doing so. A debt collection agency may also allow the debt to be paid in monthly installments. Debts do have an expiry date, there are some statute of limitations beyond which a collection agency is not allowed to sue a debtor. For example, many states in the USA, have a rule that a debt older than 4 years cannot be collected upon. Other states have a 3 or a 10-year cut-off period.

Credit Bureau Reporting

Non-payment of debt can be reported to credit bureaus ( Transunion, Experian and Equifax) by the collection agency if the original creditor wishes to do so. This negative entry on the debtor’s credit history report can be quite damaging because the chances of getting a new loan goes down significantly for many years. He may also face problems in changing jobs as many employers run credit checks on their prospective employees.

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Importance of collection agencies

Due to the nature of their business, debt collection companies have a bad reputation. FTC gets the highest number of complaints from this industry. But see the flip side, there are thousands of collection agencies in the USA, giving employment to hundreds of thousands of individuals. They also help many businesses to avoid going out of business due to unpaid bills, saving their jobs as well.

Do read our article about how to improve the cash flow for your business and minimizing accounts receivables. While you outsource all those problems in debt collection to a 3rd party collection agency, you can focus on more important things like expanding your business or serving your existing clients.

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