Principal Reasons That Businesses Must Never Pre-pay For Commercial Collection Agencies
Not all commercial collection agencies are the same. There are first-party collection agencies, which are typically subsidiaries of the original creditors and a simple solution for some, which third-party agencies are an option for others. These operate by buying the debt at a deeply discounted rate or by representing the creditor in the collection attempts. Third-party agencies may charge a flat fee that is paid in advance of services or may be hired on contingency, meaning they are paid a percentage of what is collected.
Why Businesses Should Outsource Their Debt Collection
Debt collectors are specially trained with certain skills, as well as thick skin. Also, debt collection agencies have access to a national network of resources, including government officials and private investigators, who can assist them in tracking down a debtor and his or her financial status so they are better able to assess repayment situations. Also, debtors tend to drag the name of the collection agency through the mud.
If a company were to collect debts using its own subsidiary agency, then the brand too would get impacted by the bad publicity. Then, there are special set of debt collection skills required - no business can acquire these specialized skills just by setting up a debt collection department. Therefore, it makes sense to outsource debt collection to a third-party commercial collection agency.
Why Businesses Must Never Prepay A Third-party Collection Agency
1. In some cases, collection agencies provide what is called pre-collection or soft collection services, which means sending a series of letters to the debtor that include instructions on debt repayment by a specific date and consequences of failure to comply, such as negative credit reporting and collection action. These agencies charge a fee to creditor businesses in advance and send the letters at regular intervals.
The problem here is that most debtors are aware of these letters and these are crumpled and chucked into the trash can. No defaulting debtor has a clean credit history and most likely he is not bothered about what will happen to it.
2. Debtors are experienced with playing the same game over and over and often simply makes a call to the soft collection agency to buy time, knowing that the letters will be sent but no action will be taken to accompany those letters. This leads to big delays in the collection process.
3. Mailing the letters is a minimal expense for soft collection agencies because they have their own mailing department. They spend little on this and less on calling and sweet talking debtors, pocketing the advance they are paid by the company. If they get no results, it doesn't bother them because they have already collected their fee and deposited it in their bank account.
4. It is an open secret in the industry that collection letters from commercial collection agencies don't work. The collection agencies too are aware of this fact and they know that sooner not later, the creditor will ask them to roll over the debtors in their contingency plan.
In knowing that the letters do not rein in the debt, businesses should be aware that prepaying fees to soft collection agencies sending serial letters is a waste of time and money. On the other hand, collection agencies who charge on a contingency basis work well, charging only a percentage of what is actually collected. This leaves the creditor business with zero risk.
It is a win-win situation because the contingency agencies are hungry for the cash influx so they go after debtors aggressively to recover default debt, while the crediting business benefits by receiving at least a portion of the funds they believed they would never see again. While businesses must choose to outsource debt collection to a commercial collection agency to see results, they should never prepay for a soft collection agency to just send letters.
Why Businesses Should Outsource Their Debt Collection
Debt collectors are specially trained with certain skills, as well as thick skin. Also, debt collection agencies have access to a national network of resources, including government officials and private investigators, who can assist them in tracking down a debtor and his or her financial status so they are better able to assess repayment situations. Also, debtors tend to drag the name of the collection agency through the mud.
If a company were to collect debts using its own subsidiary agency, then the brand too would get impacted by the bad publicity. Then, there are special set of debt collection skills required - no business can acquire these specialized skills just by setting up a debt collection department. Therefore, it makes sense to outsource debt collection to a third-party commercial collection agency.
Why Businesses Must Never Prepay A Third-party Collection Agency
1. In some cases, collection agencies provide what is called pre-collection or soft collection services, which means sending a series of letters to the debtor that include instructions on debt repayment by a specific date and consequences of failure to comply, such as negative credit reporting and collection action. These agencies charge a fee to creditor businesses in advance and send the letters at regular intervals.
The problem here is that most debtors are aware of these letters and these are crumpled and chucked into the trash can. No defaulting debtor has a clean credit history and most likely he is not bothered about what will happen to it.
2. Debtors are experienced with playing the same game over and over and often simply makes a call to the soft collection agency to buy time, knowing that the letters will be sent but no action will be taken to accompany those letters. This leads to big delays in the collection process.
3. Mailing the letters is a minimal expense for soft collection agencies because they have their own mailing department. They spend little on this and less on calling and sweet talking debtors, pocketing the advance they are paid by the company. If they get no results, it doesn't bother them because they have already collected their fee and deposited it in their bank account.
4. It is an open secret in the industry that collection letters from commercial collection agencies don't work. The collection agencies too are aware of this fact and they know that sooner not later, the creditor will ask them to roll over the debtors in their contingency plan.
In knowing that the letters do not rein in the debt, businesses should be aware that prepaying fees to soft collection agencies sending serial letters is a waste of time and money. On the other hand, collection agencies who charge on a contingency basis work well, charging only a percentage of what is actually collected. This leaves the creditor business with zero risk.
It is a win-win situation because the contingency agencies are hungry for the cash influx so they go after debtors aggressively to recover default debt, while the crediting business benefits by receiving at least a portion of the funds they believed they would never see again. While businesses must choose to outsource debt collection to a commercial collection agency to see results, they should never prepay for a soft collection agency to just send letters.
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