It is important to carefully consider the decision of sending someone to the collection. Federal law regulates the way you and any collection agency you hire can or cannot try to collect a credit card debt.
This guide explains the rules to follow so that your business does not get into trouble when it comes to collecting unpaid debts. We also show you how to do this while still complying with the laws.
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What does it mean when someone is sent to the collection?
Sending someone to collections is the same as hiring a collection agency in order to recover their unpaid debt. You don’t have to send someone to readers if you are trying to contact a customer or client through your normal communication channels or if you’ve sent them several letters saying their account is overdue.
In the United States, debt collection is an industry worth approximately $ 18.8 billion. Around 28 percent of Americans will have at least one debt that is in the group by 2022. Credit card debt, medical debt, and student loans are the most common debts incurred by U.S. householders. Credit card debt is average for U.S. households at around $15,000
Businesses that are not financial institutions now owe an estimated $ 17.7 billion to the nation. They will often have to use debt collection in order to recover this money.
When should someone be sent to the collection?
Experts recommend waiting up to 90 days after the invoice due date before sending someone to collection. Once the due date has passed, you can ask your nonpaying customer to pay up. You cannot refer them to the group at this point. You can try several different methods to get paid.
Before sending someone to the collection, there are some things you should do.
Consider the following in the 90 days between the time an invoice is due and the time you refer a client to collections.
Call the debtor
A professional and direct phone call will remind your client of the debt they owe, as well as show that you are serious about collecting it. Use a friendly but firm tone when you call the client. Do not scold them; instead, explain how they can repay their debt.
Send debt collection letters.
You can either send debt collection letters after you have called the client, or you can skip this step. It would be best if you used the same firm but friendly tone in your first letter to remind the client about their debts. Later letters may state that you intend to send the client for collection or take legal action.
Offer to settle.
It’s sometimes best to settle a dispute by offering a payment that is smaller than the debt but still resolves the issue. A settlement could be more beneficial to you than a collection, given how costly they can be.
You can take your claim to the small claims court.
You can go to small claims court in your state if you have not received payment after following the steps above. The debt is less than the small claims limit of your condition. Small claims court does not require you to have an attorney with you. If your client fails to show up, you automatically win the case. Small claims court can cost you more money and time than the amount of money that you are likely to recover. If this is the case, collection may be your best option.
Hire an attorney.
If your debt is too big for the small claims court, you can hire an attorney who will bring your case before a court. This step does not precede the collection process. Instead, the nonpaying client’s lawsuit replaces it. It may be better to opt for collection rather than sue a client, as both can be costly. However, collection agencies will likely cost you less and save you time.
The last resort should be to sue a client who has not paid. Call the client and send them a debt collection letter before you decide to take this final step.
What you should not do during the collection process
All debt collection processes, whether you use a collection agency to collect or do it yourself, must be compliant with the federal Fair Debt Collection Practices Act. Violation of this law could make you or your collection agency look untrustworthy and give your debtor more ammunition to sue you in court.
Neither you nor your collection agent should do the following things during the collection process.
Contact the debtor at any time.
According to the FDCPA, debt collection calls cannot be made before 8 am or after 9 pm in the time zone of the debtor. The only exception is if a debtor requests to speak with you outside of these hours.
Call the debtor at their workplace.
The debtor may request that the collection agency or you not contact him at his workplace. You and your collection agency are required to comply with the FDCPA if a debtor requests that you or your firm not get them at their workplace.
If the debtor has an attorney, contact them directly.
According to the FDCPA, neither you nor your debt collection agency may contact a debtor directly who has retained a lawyer. All communication with the lawyer should be done now. The lawyer can then talk to the debtor about debt collection issues.
Contact the debtor’s family and close friends repeatedly.
According to the FDCPA, you or your collection agency may only contact family members or friends one time and only for the purpose of locating the debtor. You or your collection agency may not reveal to the debtor that you owe them money.
Tips for hiring a debt collection agency to manage your debts
Here are some things to consider when choosing the collection agency to hire.
Specialties of an agency: A company that excels at recovering debts for clients in the business-to-business sector may have difficulty doing so with consumers.
Certifications and qualifications: An honest debt collection agency is a member of the Commercial Collection Agency Association. They are also certified by the Commercial Law League of America and have the appropriate state license.
Tactics: Ask the agency about the tactics they use to collect your debts and how you will be communicated with throughout the collection process.
Insurance Collection is a risky, aggressive job. You want to be sure that you are not held responsible for the actions of your agency. If the agency has errors and omissions coverage, you are off the hook.
Contracts: Ask about the binding nature of a contract and what will happen if you decide to break it. You should ask if you are able to review the agreement before agreeing with an agency.
Costs -Hiring an agency to collect debts is the last resort. You will probably lose clients if you send them to collections. This is also costly. You may want to consider whether the cost of shipping your debt to the group is worth it. Then, if it doesn’t work, try the other options listed above.