Debt collection agencies act on behalf of creditors to collect debts when the creditors don’t have the time or resources to chase down severely overdue debts for themselves. Collection agencies specialize in this kind of work which means they have staff that specializes in debt collection, which covers a broad range of legal and negotiating skills, and a streamlined process for pursuing accounts.
As a creditor, when you hire a collection agency, they are assigned the job of collecting the debt. Normally, if the agency is successful in debt collection the collection agency will retain a percentage of the amount collected as payment for services.
Some agencies will buy the accounts but most will not. The debtor does not actually owe the collection agency any money but they still owe the debt to the original creditor. By law the collection agency must provide, if asked, proof of the debt (known as validation of debt) that they have been assigned the account for collections on behalf of the creditor.
From time to time collection agencies buy old accounts hoping that the debtor is in a better position today to pay the bill.
All collection companies are governed by federal laws (FDCPA) and collection agencies are not in the business of collecting fraudulent debts. However, when acting on behalf of a legitimate creditor they will take all necessary steps to enforce the collection of overdue accounts, including going to court on behalf of the creditor and reporting to the credit bureaus.
You should use a collection agency when -You know the debtor has the ability to pay the debt is that is due and there are no announced reasons for not paying
A debt collection company will approach the situation through a multi-stage letter writing campaign which can be effective, if occasionally slow, but it may not lead to recovery when the debtor thinks he has a valid excuse.
The amount past due is disputed when there is an unrelated claim against you, the debtor’s solvency is in doubt or there is the possibility of bankruptcy that offers security to recover or a possible prejudgment remedy
If any of these circumstances occur, the creditor should for their own legal protection retain control of critical decisions such as if and when to litigate, what attorney to retain and any other decisions made prior to or during litigation. This is particularly important where the creditor has a long term interest in retaining the customer as his client. Not retaining control of critical decisions and proceeding without the advice of an attorney could leave the creditor open to adverse legal liability.
The option exists where the creditor does not wish to do additional business and the creditor is not interested in the outcome of a debt collection. Beyond getting his money, he may try to sell the debt to a debt purchaser.
Mallory McGuinness is employed by a collections agency that works with a debt collection lawyer. She also writes articles on business and finance, consumer spending and collections agencies.