If you are thinking about using a debt collection agency to mange your outstanding accounts receivables, it’s only natural to have some questions. Here are answers to seven frequently asked questions about engaging debt collection services:
1. How do debt collection agencies work?
Debt collection agencies assist businesses in collecting aged receivables, debts that have been on the books for some time, but have not been paid.
When a business decides to partner with a debt collection for accounts receivable management services, they provide the agency with a list of customer accounts with outstanding debts. Good debt collection agencies will analyze the data to categorize it for processing.
Once the accounts are categorized, the agency can begin contacting each customer to collect the debt. A combination of phone calls and letters are typically used to reach the customer and encourage them to pay what they owe.
2. Why do medical practices use collection agencies?
Many medical practices lack the in-house time and expertise to collect debts effectively. For example, the person usualy calling patients to request payment of overdue bills is the same person answering the continuing ringing phone and scheduling appointments. This likely means that proper debt collection training has not been performed and adequate time is not available to devote to the collections process. Lack of time, expertise and comfort in collecting debts all contribute to a lower success rate on collecting those debt—and in the worst case scenario, legal troubles for the practice if correct procedures were not followed.
3. What are collection phone calls and letters like?
Collection agencies typically use letters and phone calls to contact customers who owe money. The letters are informative in nature, listing the balance owed, notifying the customer of their rights, informing them that a collections agency is now involved and asking them to please contact the agency to settle their debts. Generally, a portion of customers will call and resolve their debt purely because the letter comes from a collection agency.
Collection calls tend to have a bad reputation, but in reality they are an attempt to understand why the customer has not paid their debt and to work out a suitable repayment plan. By their very nature, a call from a collection agency is an uncomfortable situation—but an expert collector is not going to be mean or intimidating. They must be polite and fair, but firm. Their job is to convince the customer to pay. They do this by seeking to understand the customer: why haven’t they paid? Have they fallen on hard financial times? What can they do to remedy the situation? If they can’t pay the whole amount, can they make small monthly payments until the debt is paid off? A good collector will get to the bottom of the issue and work out a plan for repayment.
4. What actions can collection agencies take to collect debts?
If the customer refuses to pay or insists they cannot pay, the collection agency can report the situation to the credit bureaus, which will negatively affect the customer’s credit score. This is enough to persuade most customers to pay what they owe.
If the customer already has bad credit and doesn’t care if it gets worse, the client of the collection agency has the right to sue them and garnish their wages until the debt is paid in full.
5. Is there a statute of limitations on debt collection?
Yes, there is a statute of limitations on debt collection. A general rule of thumb is seven years, but the specific timeframe varies by state. After this time, the debt no longer appears on the customer’s credit score.
However, companies and collection agencies can continue to call customers—but they no longer have the ability to report the debt to the credit bureaus or take the customer to court. It’s important to note that the statute of limitations is reset if the customer ever makes a payment.
6. Can collection agencies sue debtors?
Collection agencies typically act as an intermediary for client companies who want to sue debtors. If they have a client who wants to pursue legal action against a debtor, collection agencies can find a lawyer and handle the paperwork on behalf of their clients. Before a company chooses to sue a debtor, they must decide if it is worth the cost of litigation. Going to court and paying legal fees for a $50 balance might not be worth it, but the costs may be worth it for a $1,000 balance.
7. How are collection agencies regulated?
On a state level, the attorney general is responsible for overseeing the financial wellbeing of citizens—this includes regulating collection agencies.
On the federal level, collection agencies must adhere to the Fair Debt Collection Practices Act (FDCPA). This law established certain rules about how debt collection can take place.
The FDCPA has been traditionally administered by the Federal Trade Commission (FTC), but a new regulatory body called the Consumer Financial Protection Bureau (CFPB) was put in place by the Dodd-Frank Act in 2010. If collection agencies violate regulations, they can be audited and fined. However, their clients are usually safe from any risk, as long as the debt in question is valid.
Have more questions about engaging debt collection services? Contact us to get your questions answered.