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What is a collection Agency?

A collection agency is a specialized organization that acts on behalf of a creditor to collect overdue amounts. A collection agency usually does not take ownership of the debt but just acts on behalf of its clients to organize the collection activity. It does not guarantee the collection.

Why do people fail to pay?

There are many reasons why people do not pay on time. A lot of the time people just don’t want to pay. Sometimes genuine financial difficulties, particularly of a temporary nature, are among the causes. In such cases, the person is likely to pay as soon as his financial problems are over.

The downside of using a collection agency

The persons owing the money generally view using a collection agency with apprehension. This makes them view the approach by a collection agency in a negative light. This might cause them to resist any attempts to collect money from them, even if it’s genuine. Moreover, it might result in loss of genuine and valuable customers, from whom the money would come to you in course of time, although they might have delayed the payment temporarily or in a particular case.

It is, therefore, apparent that using a collection agency should generally be the last resort. There are a few collection agencies that specialize in early intervention on a diplomatic basis.

Use a collection Agency when the case is clear

The thing that can be inferred straightaway from the above is that you should use a collection agency when you are reasonably certain that the party has the capacity to pay, is obliged to pay the amount, and is refusing or is unwilling to pay. Also the debt should be due – in fact overdue. It’s always better to wait for a short while and make your own attempts through reminders and follow up with the party before you approach a collection agency.

When not to use a collection agency

You should also consider when it is inappropriate to use a collection agency. There are many situations in which the debtor may have her own defense, and initiation of any formal or legal proceedings may become counterproductive and lead to unnecessary delays and complications. First of all, you should consider whether the debtor – the person owing the money to you – has, or thinks he has, a valid reason for not paying. If this is the case, it is very likely that he would be prepared for a fight even if it means a prolonged legal battle. This works to the advantage of neither of you. In such cases, it is better to first try and sort out the issue, if possible. Among other things, this is going to happen if the amount in question is under dispute. If this the case find out the cause for the dispute and try to settle it through proper communication and discussion. Another thing that might happen is that there is another claim against you that the debtor is trying to adjust against the current debt. In this case it is better to sort out the issue in totality.

Other difficulties and issues

Even where the debtor has no valid reason there might be circumstances under which it might become difficult to recover the amount legally. For example the debtor might not be solvent enough to pay the amount. Legal recourse would only establish your right at the most, but would not obtain the payment to you. Bankruptcy also prevents collection activities.

The cost of using the services of a collection agency

You must remember that using a collection agency involves payment of fees to the agency itself. Another consideration is the fact that legal proceedings initiated by the collection agency under circumstances similar to the ones outlined above could make your life more difficult and make the collection process long drawn out and of uncertain outcome. Because of this, it is better that you retain control over this process and over the decision as to if and when to proceed legally.

When you have security

If you possess a collateral security, it is best not to proceed legally or engage a collection agency if you can use the security to recover your amount.

About the Author: Steve Austin is a collections consultant and contributor to Collection Agency Services.