The debt collection industry is a necessary component of the US economy. Professional collectors provide a critical service to both small businesses as well as nationwide organizations in helping them secure late payments from customers. Without third-party assistance to secure back payments, many organizations would struggle on several levels.
While many consumers are not thrilled to be on the receiving end of a communication for late payment, what is important to understand is that completing their obligations to the business they secured services from is vital to the overall economy as well as the health of that business. They both work hand in hand.
Part of our economic machine here in this country is proper access to credit for consumers. The extension of credit to customers helps a business grow but it can also cause challenges when that credit obligation is not met.
Why is the debt collection industry so important?
Every product or service has a cost associated with it to get it into a consumer’s hands. Nothing of this sort gets to a consumer without related expenses. That is everything from operating expenses, the cost of goods sold to the cost of labor.
Most of us in the business world understand this basic concept of commerce.
When customers pay late or do not pay, that can immediately impact the cash flow of a business negatively. As you know, the business still has bills to pay whether their customers are paying or not. So a business continues to pay their bills on time while their customers do not, which results in negative cash flow. Does this sound familiar to you?
What happens next?
The first way a business can respond is by raising prices on particular items or services or across the board. If you are netting less on a physical product or incurring more expenses for a service, your business will have to make up the difference somewhere. If a business has recurring delinquencies over time, this might be the first step an organization takes. While they tried to get existing customers to pay, some businesses will try to make up the difference in this manner.
Another way in which a business could respond is by tightening up its credit policies. Many consumers enjoy paying for a service such as lawn care after they have received it. The customer has their lawn treated, and the company sends an invoice. And in most cases, the customer pays that invoice on time. But not every time.
That company may determine that issuing credit to certain customers is not a good idea and they could pull back, which may not be attractive to certain consumers.
Hiring a collection agency as a next move
When a business understands they are going to have a regular need for debt collections, they will need to seek third-party help to help build up their accounts receivables program. For many businesses, this is a necessary component of their overall cash flow strategy.
Hiring the right agency for your business not only helps to increase cash flow, but it can also save your business time and other valuable resources that may be allocated to chasing down late payments from customers.
Some restrictions can reduce credit to consumers
Collection laws and regulations are in place for a reason. They are there to protect the consumer. No one disputes the fact there does need to be various regulations on debt collection, and the collection industry continually works with leaders at both the federal and local levels to make these laws reasonable for everyone.
There are federal collection laws on the books such as the FDCPA that protect consumers. And each state seems the tackle its own set of laws and regulations from time to time.
There have been laws that have been proposed over time that can severely restrict the way a creditor or a third party can conduct collection activity. Each state has proposed its own laws and there are too many to list here. But the collection industry feels, and some professional studies have shown that some of these proposed restrictions can hurt the consumer when they need the help the most.
Many consumers do not know where to turn when they are faced with debt. Some may also be ashamed and unwilling to either pick up the phone or come to the table to create a resolution. But that is exactly what needs to be done and collection agencies provide a vital service to those consumers who are struggling with debt. We think of a collector representing a business and that is true.
But every day, a professional collector helps ease the burden of a consumer struggling to pay their bills.
A professional can work with the consumer diplomatically to help create a strategy to pay off their debts. Ignoring debt and letting it pile up creates a huge disadvantage for that consumer in the future when they are seeking credit. However, if they can manage their debt with the help of a third party, they can maintain and slowly improve their credit history.
When that happens, they improve their access to credit.
In short, a professionally trained debt collector not only helps a business with cash flow but improves the chances their customers can continue doing business and access much-needed credit in the future.
Regulations put in place must allow a consumer to have access to this help and guidance. They may not be thrilled to be speaking with a debt collector, but when they look back, they will realize that they improved their own financial situation by doing so.
The collection industry provides a win-win in so many ways.