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Why You'll Get Results
Outsourcing Debt Collection
A debtor can be described as any person or company who owes money – be it on a personal loan, a credit card, a store card or a house mortgage. Most people are therefore debtors at some point in their lives. This is because one almost always has to borrow money or purchase on credit when buying a high value items such as a motor vehicle, a home or furniture. The problem comes in when debtors are unable to repay their debts.
Creditors can then seek out collection agency for outsourcing the debt collection.
Some companies choose to have their own debt collection division within the structure of their business. Most companies, however, find outsourcing debt collection to be the easier and most cost-effective solution. Debt collection requires time and effort. By having a specialized debt collection unit, the company will incur the cost of added personnel and resources.
By outsourcingebt collection, companies generally do not have any immediate expense. This is because most debt collection agencies work in one of two ways. The collection agency can either take an agreed-upon percentage of the debt once it is recovered or the agency can choose to be a debt buyer. A debt buyer would purchase the debt off the creditor for a fee much less than the amount of the debt. The agency would then pursue the debtor for the total amount owing. Any amount recovered would then belong to the agency.
Companies also feel that they get better results from outsourcing. Debt collection agencies are more motivated due to the fact that the agency does not get paid until an amount is recovered. Internal employees who do debt collection generally receive a salary, so the motivation to recover the debt is not always as strong. The company will also have to cover the costs of communication, etc. that its own employees must use in order to track down the debtors.
Debt collection agencies have to be regulated by law. In most states, agencies are required to be licensed and/or bonded. The Fair Debt Collection Practices Act is a federal law of the United States that governs the practices of de
bt collection agencies.
This is to ensure that debt collection agencies do not engage in behavior that is violent and threatening to the debtor. Violation of the act can lead to private law suites being filed against the agency or it could even be closed down. These regulations for debt collection are also reasons why most companies are opting for outsourcing of debt collection.
A debt collection agency that cannot get debtors to pay also has the option of going the legal route. The collection agency can choose to sue a debtor in order to get the court to assist with the collection. Sometimes this action results in the debtor paying out of fear of the legal system. Going through with a lawsuit is a lengthy process, which is why most companies prefer outsourcing debt collection as opposed to tackling the problem themselves.