Choosing the Right Type of Collection Agency

In-house debt collection programs are often also called first-party debt collections, as the company who initially issued the credit is directly involved with the recovery of said debt. A first-party debt collection program can offer some advantages, mainly because the time between an account being deemed bad and it being turned over to the debt collection agency is often much shorter than if a third-party is used. Often, making sure information quickly and effectively is passed between the credit issuing department and the debt collection department can be shorter and have fewer hurdles.

However, while there are some advantages to preforming in-house debt collections, setting up a program that is effective is no simple task and requires a great deal of resources and training, which is why many companies find that a third-party debt recovery company is not only less expensive, but also more effective.

Third-party debt collection companies are not directly affiliated with the original company that issued the debt, the first-party, nor are they in anyway associated with the debtor, who is referred to as the second-party. Instead, the collection agency is unbiased and, since they are not associated with the company, do not have to worry about office politics or protocols, which often serve to interfere with debt collection services.

Depending on the service agreement with the creditor, the collection agency may make a set amount per action or only get a percent of recovered debt. In the case of the latter, where the company is paid a commission only on debt that is recovered, there is a greater incentive to be effective and efficient, as the company will only get paid when they are successful in recovering the creditors assets. These companies often offer a “No-Collection, No-Fee” guarantee.

In the case of debt collection agencies that get paid on per-action basis, this is often largely for the initial contact, or soft-collection process. During the initial soft-collection process, the client will receive one or more letters, which urge them to pay the debt to avoid it being sent to collections. In these cases, the collections agency might charge as little as $10 per letter, with the understanding that later on during the process, a third-party debt solution will be used.

A debt recovery program can be a great way to ensure that bad debt does not force a company underwater and that a companies assets can be maintained. It is not uncommon for companies to develop a mix of in-house and third-party debt recovery policies, to ensure that the most effective debt recovery solutions are maintained.