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What are Collection Agencies?
Home » Accounting » Collection Agencies » What are Collection Agencies?Regardless of the care with which consumer or business debtors are chosen, lenders inevitably encounter debtors who are unwilling or unable to perform their obligations. Even when such occurrences are rare for a particular lender, each unpaid debt slows profit flow and hinders company growth, and it’s in just those situations that collection agencies may prove useful.
Collection agencies are businesses that attempt to collect debts on behalf of lenders. Collection agencies differ widely in their collection approaches and company organization, but the most common types of collection agencies are either law firms which specialize in the collection of debts, or an organization of licensed debt collectors.
Although there are any number of ways in which a collection agency might persuade a debtor to pay a debt, most collection agencies follow a standard procedure after retention by a lender. That procedure involves two methods of communicating with debtors while attempting to collect a debt:
- Letters that announce that the collection agency has been retained and expects immediate payment of the debt. Many agencies simply insert the debtor’s information into a form letter, but some agencies will prepare a specific letter for each debtor.
- Phone calls to the debtor at their home or place of employment.
Most collection agencies begin the process with letters before phoning the debtor, but the two approaches are often used together if the initial letters prove unsuccessful. As a last resort, a collection agency may sue a debtor in order to obtain the court judgment necessary for the seizure of a debtor’s assets.
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