Debt Collections 101

Defining the Basics of the Collection Industry

What is a professional debt collection service?
Third–party collection services collect on past–due accounts referred to them by various credit grantors—credit card issuers, banks, car dealers, retail stores, healthcare facilities—any business that extends credit or offers payment installment plans.

What does a typical professional collection office do?
Often creditors cannot locate consumers who have moved or changed their phone numbers. The first thing a collection service must do is obtain the consumer's current address or phone number through a process called skip tracing. The collection office then sends the consumer a notice that allows him or her to dispute the validity of the debt and/or request verification of the debt. Once the notice is received, a collector may call or write to the consumer and ask for full payment of the debt. If payment in full is not possible, the collector helps the consumer make arrangements to solve the problem.

Why are accounts referred for collection?
Most accounts are referred for collection because they have gone unpaid for several months and the creditor has not received communication from the consumer. Third–party collection services, which use specialized phone systems, computers and software designed specifically for the collection industry, often are more effective than creditors at collecting payment on such delinquent accounts.

What is the difference between "in–house" collections and third–party collections?
Third–party collectors are directly regulated by the Fair Debt Collection Practices Act (FDCPA), which is administered by the Federal Trade Commission (FTC). The FDCPA sets forth strict guidelines designed to protect consumers from abusive, misleading and unfair debt collection practices. In–house collectors are credit grantors and are covered by the FDCPA only under certain circumstances.

Is there a typical debtor?
No. People from all walks of life face financial problems. These problems can stem from poor money management and budgeting skills, the loss of a job, prolonged ill health or a multitude of other unforeseen circumstances.

Why do we need collection agencies?
Most accounts are referred for collection because they have gone unpaid for several months. Without the quick actions of collection services, unpaid debt is often reflected by higher consumer prices. Since there is a limit on how high prices can be increased before businesses begin losing customers, bad debt also results in business failure and job loss.

Collection Facts and Figures

• There are over 6,000 collection companies nationwide. 

• 65-80% of these agencies are traditional percentage agencies, meaning they take a percentage of every collection they make.  The average percentage taken is 33 1/3%. 

• The ACA (American Collectors Association) tells us that the average collection agency collects 10% of the money owed to its clients. 

• The collection industry saves the typical American family $331 a year. This represents money they would have spent if businesses raised their prices to cover losses to bad debt instead of recovering the revenue through a collection agency. (Source: ACA International, May 2004)

• The Fair Debt Collection Practices Act (FDCPA), the primary federal law regulating third–party collection agencies, which was enacted in 1977 with the support of ACA, is designed to help protect consumers from unfair and abusive collection practices. (Source: A Guide to the Fair Debt Collection Practices Act)

• ACA member agencies make nearly 87 million consumer contacts a month, which equates to more than 1 billion contacts per year. (Source: an ACA International study conducted by Ernst & Young)

(Source:  http://www.acainternational.org)

APR's debt collection solution is a simple, diplomatic collection system that uses a benevolent approach to collecting your accounts receivables. If you want to retain a relationship with your customer, we offer a superior alternative to methods used by traditional Collection Agencies. Call us today to learn more  about the APR debt recovery solution. We can make your bad debt collections  easier and more successful. Outsourcing debt collection to APR is the best decision you'll make this year.