In the U.S., we’re a credit-driven country. Due to this factor, consumers can receive the benefits of goods and services effortlessly. Moreover, they can quickly pay for them over time. But, a credit-driven economy comes with some complexities. For example, many of these transactions here go unpaid. At this point, creditors and lenders often outsource the task of recouping these outstanding receivables to debt collection companies.
You must clearly understand that the debt collection industry not only serves a vital role when recovering outstanding debts owed to creditors and service providers. However, it also focuses on lenders to make credit available to a wide range of consumers. It also employs a significant number of people in the U.S. and worldwide.
Dealing with collections
When a creditor forwards accounts to third party debt collectors, they are tasked with managing day-to-day activities associated with these accounts. The status of placed accounts within the originating creditor’s billing or collection system states that the account has been closed. The third party collections will initiate the collection process from now onwards.
Real-time or near real-time updates between creditors and agencies are essential. In addition, accurate, reconciled balances and statuses reduce the chances of FDCPA and other regulatory infractions.
How do third party collections agencies work?
Upon receipt of accounts from creditors, these collection agencies perform a series of actions designed to ensure that the account is eligible to be collected, secure the most accurate or available data about the account holder, and load the accounts into their database. The most common recovery techniques include sending letters, emails, telephonic communication, and credit bureau reporting.
The collection firms try to obtain payment in full, negotiate payment arrangements, agree on a settlement amount, or help the consumer work through the process of disputing the debt for various reasons. Agencies get contracted to work with the accounts for a specified period. Meanwhile, those accounts not successfully resolved within the time get returned to the lender by third party collections.
Breakdown in the collection process
Consumer-specific collection involves collecting unpaid debts from individuals. The collection process in regard to consumers is highly regulated, and efforts must be taken to ensure they are fully compliant with federal laws. Basically, these laws dictate the actions collection agencies may take, how they interact, and more.
- A professional third party debt collections agency will identify itself as a debt collector
- State who the original creditor is and how the consumer dispute the debt
- Send a written notice to the consumer within the first five days after the initial contact
When contacting the consumer, it’s vital that the collections agency act as a representative of the original creditor. It’s equally essential that the collection agency keeps in mind they are acting as representatives of the original creditor. It’s also critical they understand how to remain compliant with the collections practices.
It takes a significant investment of time and dedication on behalf of the debt collection agencies to understand the client’s mission and keep the brand and reputation of the customer.
The customized debt collection process
Customizable debt collection processes tend to focus more on substantial claims and larger clients and maximize the total amount of the outstanding debt collected. As a result, most collection agencies offer a customizable debt collection process. Basically, it’s more about focusing on a more personalized process to meet the unique needs of the clients.
These agencies often focus on and are better suited for more complicated collection cases and cases where maximum recovery is on each account.
When to hire a collection firm?
One of the most vital decisions is to hire a debt collection agency. However, it’s also seen that each creditor has its own process and timing when it comes to engaging a collection agency. To be precise, this occurs when a debt becomes 60 days or more past due and internal efforts to satisfy the debt have not worked.
The creditor can write off the debt as an account receivable asset on their balance sheet as the account is unlikely to get paid. Here, the creditor’s balance sheet looks better, yet the creditor still maintains the ability to collect on an outstanding asset.
Collection agencies receive a commission percentage when an account gets collected. But, it would help if you also kept in mind that commission varies by age, balance, type, and the number of times the account has been previously worked. The older an account gets, the more difficult it becomes to collect. Later stage collections tend to have a high commission rate because fewer accounts are likely to pay.
First party vs. third party collections
It’s noteworthy to understand the difference between first party debt collection vs. third party collections. Basically, the former refers to a company using its own employees, usually within the accounts receivable department, to collect unpaid invoices. On the other hand, third party debt collectors are agencies outside the original crediting company.
If any invoice remains unpaid, the original creditor, i.e., the first party, can pursue the account holder to fulfill their obligation to pay. In case, after a particular time, the original creditor requires assistance, they may opt to hire a third party collections agency.
First party debt collections
Every account receivable department may include different ways of managing delinquent accounts and unpaid invoices. Depending on the size and structure of the company, you may choose to run a few phone calls and eventually write off the account as bad debt.
Big business houses may run their in-house collections group within accounts receivable. Meanwhile, the first-party debt collections team will attempt to collect before a specified period of time.
Here, benefits include,
- Retaining 100% of what gets collected
- Control of the tone of client correspondence
- Maintenance or restoration of client relationship
Third-party collections
When an account gets charged or written off as bad debt, it has been deemed uncollectible by the original creditor. Here, the creditor assigns the account to a third party agency on a contingency fee basis. Fees vary depending on the agency and the agreement with the creditor.
Benefits of third party collections to the original creditors include,
- No fees are required unless the agency is able to collect
- The ability to focus on other tasks while the debt is being collected
- The use of collections technologies that may not be available to the original creditor
- Expertise and efficiency of professional collections representatives
Final Wrap
Vital Solutions has extensive knowledge in the field of the collection sector. We can create custom plans that help clients rectify delinquent accounts. In addition, our firm takes action to bring the accounts receivables up to date while ensuring collection compliance with the FDCPA, HIPAA privacy laws, the Telephone Consumer Protection Act, and other applicable regulations and legislation.
We provide third party debt collections service in different industries, including healthcare, fintech, auto finance, and more. We work with clients and customers by offering a multitude of payment options that promote firm commitments and results in recovered funds. We can rectify past due balances and delinquent accounts while preserving your relationship with the debtor in many cases.
So, are you ready to evaluate the debt collection process? Get in touch with a professional firm today. We can make a difference with our comprehensive collection strategy. At Vital Solutions, regardless of the industry, you can count on the expertise to enhance your recovery.
Reach out to us today, or visit our website to sit for a consultation with our collection specialists today! Then, we can sort out all the issues comprehensively.
