If a debtor (customer) fails to pay a bill either on time or at all, it has a negative effect on the company’s credit rating. A choice can be made in such situations to give this party formal notice to pay the bill. A demand letter is a somewhat urgent request to the debtor to fulfill his obligation(s). It is also possible to hire a collection agency to go after the outstanding amount. A collection agency is a company that focuses on collecting outstanding invoices and debts on behalf of their clients. They can be both individuals and businesses that owe money to the collection agency’s client. The main job of a collection agency is to ensure that outstanding bills are paid. They send reminders and dunning letters to the debtor and try to persuade them to make payment. If these attempts prove unsuccessful, the agency may take legal action such as garnishment or subpoena. The agencies usually work on a no cure, no pay basis, which means they only get paid if they succeed in collecting the debt. The fee they receive is usually calculated based on a percentage of the amount collected. Although many people think that hiring a collection agency may appear aggressive or unfriendly, it can actually help them deal with defaulters professionally and objectively without getting emotionally involved in the case themselves.
Engaging a collection agency
Thus, if the customer does not pay despite repeated attempts, the decision may be made to use a collection agency. This commercial institution aims to reach an amicable solution and collect outstanding debts. This allows the process to be settled out of court and thus eliminates the need for legal collection. A collection agency thus takes the same actions that the entrepreneur would take. Nevertheless, a collection agency is often the best at collecting a sum of money. This is because a third party can often have a great deal of impact in enforcing certain obligations. The saying “strange eyes compel” applies strongly in the world of debt collection.
How does a collection agency work?
A collection agency is a company that specializes in collecting outstanding debts. When someone fails to pay for goods or services rendered, a creditor may decide to use a collection agency to still get this payment. How does this process work? It usually begins by sending a reminder to the debtor asking them to pay within a certain period of time. If there is no response, the agency will contact the debtor via email, phone or mail to urge him/her to pay. If this too is unsuccessful, the agency may proceed to further steps such as using lawyers and bailiffs. This can lead to legal proceedings and possibly even seizure of the debtor’s property. The goal of a collection agency is always to ensure that the debtor eventually fulfills his/her obligations without unnecessary costs or loss of time for the creditor. Because of their expertise in laws and regulations surrounding debt collection, they can often act more effectively than individual creditors could do themselves.
Benefits of a collection agency
One of the advantages of working with a collection agency is that you, the client, can influence how the dunning is done. Also, a collection agency consists of professionals who know how to hold a difficult collection conversation. Thus, these experts often know how to convince difficult defaulters to fulfill the payment obligation anyway. Because a collection agency often applies considerable pressure, the entire payment process is accelerated. This time savings allows you to operate more efficiently and economically in your business. Finally, the majority of collection agencies work with the “no cure no pay” principle, which means that you as the client only have to pay if the debtor fulfills his obligation and pays the collection agency.
