Many companies, especially small businesses, do not have the personnel or the expertise necessary to track down old debts, so they choose to use the services of a collection agency. A collection agency can be a person or a company that arranges for repayment of money owed to a third party.
The Impact of a Credit Collection Agency on a Credit Report
Once a debt has been transferred to a collection agency, there is little you can do but settle the debt or go to court. The time to negotiate or ask for leniency is gone. If the collection account is legitimate, it will remain on your credit report for seven years.
Lenders look closely at past collections when determining credit worthiness. If you had a medical collection two years ago because your insurance company denied a claim, a lender will probably not be very concerned. However, if you have one or more collections resulting from legitimate debts such as cell phone bills, past due rent, or unpaid utilities, a lender will seriously question your ability to repay a new debt.
Credit Collection Agency Techniques
A typical collection agency operates on a commission basis, getting paid only when debts are recovered. Commission rates usually range from 25 to 50 percent, depending on the past due amount and how long the amount has been due. Other collection agencies operate on a flat-rate payment plan, receiving a set fee for each debt recovered.
Most collection agencies begin with a written demand, followed by verbal demands over the phone or in person. If the collection agency's written and verbal attempts to reclaim payment fail, the delinquent account can be sent to court for legal proceedings.
Tips for Internal Collection
If you don't want to resort to the services of a credit collection agency, there are a few tips to follow in order to increase your ability to collect payment. First, establish a solid credit collection policy and follow it. Second, contact delinquent accounts every 10 to 14 days instead of only once a month. Third, use a third party credit collection agency after 90 days of nonpayment. The longer you wait to collect a debt, the less likely it is that you'll be repaid.
By Aaron McCullough