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The Business Of Debt Collection

Debt collection businesses are highly lucrative due the increasing levels of payment defaults. As it is impractical for a business group to nag debtors to collect debt amounts, debt collection agencies are appointed to make sure that debts are repaid. From fragmented debt collection offices, the business has now grown to corporate establishments. Many debt collection agencies are now focused on international debt collection as well. Today debt collection has even become the ideal entrepreneurship with safe returns.

A service industry operating in a highly regulated environment

Debt collection businesses work on a network system to ensure satisfactory service for the client, irrespective of locations. Larger concerns appoint franchisees to regulate local services. Debt collection agencies offer personalized services to gain the confidence of their clients. They have the difficult task of collecting debts, without disturbing the delicate customer relationships of the client. Most agencies resort to various tactics instead of abusive measures. The professional attitude and working pattern help to achieve time bound results.

Debt collection businesses have to work according to the regulations of the Fair Debt Collection Practices Act. The federal law restricts bogus actions against debtors. They include proficient staff well versed in FDCPA, with necessary skills to enhance efficiency. Various tools, including software are used to regulate office proceedings, automated dialing system, messaging system and other devices. They usually adopt a step by step procedure to revenue the debts. Litigation is only the last resort in the debt collection process.

Commission or fee based monetization

Debt collection businesses normally work on a commission basis. They charge 20%-50% of the collected amount, depending on the complications of the case. Debt collection agencies also extend online debt collection, debt consolidation, credit reporting, letter services and accounts receivable outsourcing. Some agencies buy statute expired debts, most of which are highly profitable if the debtors can be prompted for repayment. Debt collection businesses thus play the role of a one stop shop for all payment issues.

Some debt collection agencies collect past-due bills and accounts receivable for other persons or businesses in exchange for a fee. Collection agencies charge for their services in one of three ways: a flat fee, a percentage of the amount recouped, or more commonly through a direct purchase of the delinquent account.

Debt Collection techniques

In order to collect debts most debt collection agencies will use one of three options - letters, telephone calls or litigation. Typically, debt collection agencies send a series of notification letters, often allowing the debtor to enter into negotiations to repay the debt. These letters are often called 'demand' letters. The final notification letter that is sent out generally warns the debtor that if no contact is made prior to a certain date then the debtor's name - whether it be an individual or a company – will be passed onto a more intensive method of debt collection.

In addition to letters, some collection agencies also phone the debtor directly, again allowing the debtor to work with the agency to agree a plan to repay the debt. Telephoning a debtor at home can sometimes have the best results in collecting a delinquent debt. The third method, litigation, is a last resort and is generally only used when all other attempts to reclaim the debt have failed. Litigation involves taking the debtor to a small-claims court and could eventually result in the debtor being made bankrupt, depending on the amount of debt owed.

Other services provided by debt collection agencies include locating absent debtors who can no longer be reached at the address or telephone number listed on their accounts. Some agencies also offer 'doorstep' collection, whereby they employ a number of collectors to visit debtors in their homes to arrange the repayment of debts owed.

Debt purchasing is becoming big business worldwide with many specialist debt collection agencies, providing advice on how best to proceed with the recovery of unpaid debt. If you are considering starting your debt collection business, consider all the pros and cons carefully. It is a good idea to speak to owners of successful debt collection companies outside your area to get a first hand idea of whether this will work for you.