How A Debt Collection Agency Works To Recover Debts

06 Apr 2015

There are several types of lenders in the market, who is providing monetary assistance to individuals. Banks, credit card companies, private individuals and other financial institutions offer loans on various terms.

About debt collection agency

There are a lot borrowers, who are unable to repay the loan sometimes for various reasons. It is a critical situation for the credit issuers because they cannot afford to do away with their money just like that.

Initially, they try on their own to recover their rent money from the defaulter through letters and phone calls. But they do not necessarily succeed in getting a favorable response from the borrower.

Hence, as a last resort, these creditors approach a third party, who is in the business of collecting debts for them. It is called debt collection agency. Creditors prefer hiring one to recover their debts instead of writing them off as bad debts in their books.

How a debt collection agency works

Debt collection agencies work in two distinct ways. One is that the creditor will sell the overdue account to the agency for less than the amount that needs to be collected and then it will collect the full amount from the borrower.

That difference is its profit. Another one is that the creditor will hire a debt collection agency to recover the outstanding amount from the borrower for a percentage of the collected money.

The agency will start with collecting all the information about the debtor with the help of the creditor. Creditor will approach the bureaus to gather the latest information about the whereabouts of the borrower and will share it with the collection agency.

The updated data are helpful in tracking down the borrower even if he has moved to another location. The debtor generally, leaves footprints when he rents a new place or applies for a new credit card to the new address.

Hence, it does not steal much time for the agency to trail the debtor. Dealing with these aberrant accounts is prioritized on the basis of higher chances of recovery.

Usually, these agencies will charge higher when the delinquent account is old because it becomes more difficult to restore the amount. They usually work undercover in order to gather more information from the debtor's family and friends.

They do not comply with any set of rules when they work. They decide on the collection method after reviewing the account details and then work accordingly, which also depends on how well the creditor is prepared to pay them.

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