What is a Debt Collection Agency?

What Is a Debt Collection Agency? What Do Debt Collectors Do?

By

AMY FONTINELLE

Updated February 23, 2023

Reviewed by

KHADIJA KHARTIT

Fact checked by

YARILET PEREZ

What Is a Debt Collection Agency?

A debt collection agency is a company that acts as middlemen, collecting customers’ delinquent debts—debts that are at least 60 days past due—and remitting them to the original creditor. Debt collectors often work for debt-collection agencies, though some operate independently. Some are also attorneys.

Learn more about how debt collection agenies and debt collectors work.

KEY TAKEAWAYS

• Debt collectors may work independently or for debt-collection agencies, and some are also attorneys.

• Debt collectors get paid when they recover delinquent debt.

• Some collection agencies negotiate settlements with consumers for less than the amount owed.

• Additional federal, state, and local rules were put in place in 2020 to protect consumers faced with debt problems related to the pandemic.

• Debt collection agencies will go after any delinquent debt, from overdue student loans to unpaid medical bills.

How Debt Collection Agencies Work

Collection agencies tend to specialize in the types of debt they collect. For example, an agency might collect only delinquent debts of at least $200 and less than two years old. A reputable agency will also limit its work to collecting debts within the statute of limitations, which varies by state. Being within the statute of limitations means that the debt is not too old, and the creditor can still pursue it legally.

The creditor pays the collector a percentage, typically between 25% to 50% of the amount collected. Debt collection agencies collect various delinquent debts—credit cards, medical, automobile loans, personal loans, business, student loans, and even unpaid utility and cell phone bills.

For difficult-to-collect debts, some collection agencies also negotiate settlements with consumers for less than the amount owed. Debt collectors may also refer cases to lawyers who file lawsuits against customers who have refused to pay the collection agency. 

What Do Debt Collectors Do?

Debt collectors use letters and phone calls to contact delinquent borrowers and convince them to repay what they owe. When debt collectors can’t reach the debtor with the contact information provided by the original creditor, they look further, using computer software and private investigators.

They can also conduct searches for a debtor’s assets, such as bank and brokerage accounts, to determine their ability to repay. Collectors may have a policy of reporting delinquent debts to credit bureaus to encourage consumers to pay since delinquent debts can seriously damage a consumer’s credit score. 

Debt collectors use letters and phone calls to contact delinquent borrowers and try to convince them to repay what they owe.

A debt collector has to rely on the debtor to pay and cannot seize a paycheck or reach into a bank account, even if the routing and account numbers are known—unless a judgment is obtained. This means the court orders a debtor to repay a certain amount to a particular creditor.

To do this, a collection agency must take the debtor to court before the statute of limitations runs out and win a judgment against them. This judgment allows a collector to begin garnishing wages and bank accounts, but the collector must still contact the debtor's employer and bank to request the money.

Debt collectors also contact delinquent borrowers who already have judgments against them. Even when a creditor wins a judgment, it can be challenging to collect the money. Along with placing levies on bank accounts or motor vehicles, debt collectors can try placing property liens or forcing the sale of an asset.

Agencies That Buy Debt

When the original creditor determines that it is unlikely to collect, it will cut its losses by selling that debt to a debt buyer. Creditors package numerous accounts together with similar features and sell them as a group. Debt buyers can choose from packages that:

• Are relatively new, with no other third-party collection activity

• Very old accounts that other collectors have failed to collect on

• Accounts that fall somewhere in between

Debt buyers often purchase these packages through a bidding process, paying on average 4 cents for every $1 of debt face value. In other words, a debt buyer might pay $40 to purchase a delinquent account that has a balance owed of $1,000. The older the debt, the less it costs since it is less likely to be collectible.1

The type of debt also influences the price. For instance, mortgage debt is worth more, while utility debt is worth significantly less.2

Debt buyers keep everything they collect. Because they took the risk of purchasing the debt from the original creditor (and paying in advance to the original creditor), this debt becomes their own, and any amounts collected are theirs.

Debt collectors get paid when they recover the delinquent debt. The more they recover, the more they earn. Old debt that is past the statute of limitations or is otherwise deemed uncollectable is bought for pennies on the dollar, potentially making collectors big profits ff the borrower pays.

How Debt Collectors Work

Debt collectors have a reputation for harassing consumers. The Federal Trade Commission (FTC) receives more complaints about debt collectors and debt buyers than any other single industry.3

The Fair Debt Collection Practices Act limits how collection agencies can collect a debt to keep them from being abusive, unfair, and deceptive, and there are debt collectors who are careful not to violate consumer protection laws.4

A collector who behaves properly will be fair, respectful, honest, and law-abiding. After you make a written request for verification of the debt you've been contacted about—which is your legal right—the collector will suspend collection activities and send you a written notice of the amount owed, the company you owe it to, and how to pay.

If the collector can’t verify the debt, the company will stop trying to collect it from you. It will also tell the credit bureaus that the item is disputed or request that it be removed from your credit report. If the collector works as a middleman for a creditor and doesn’t own your debt, it will notify the creditor that it stopped collection activity because it couldn’t verify the debt.5 

Collectors must also follow certain time limits, such as not reporting a debt that is more than seven years old and sending a debt validation letter within five days of the first contact with the debtor.6

Reputable debt collectors will try to obtain accurate and complete records so they don’t pursue people who don’t really owe money. If you tell them the debt was caused by identity theft, they will make a reasonable effort to verify your claim. They also won’t try to sue you for debts that are beyond the statute of limitations.78

Debt collectors are forbidden to harass or threaten you or treat you differently because of your race, sex, age, or other characteristics. They may not publicize any debt you owe or try to deceive you to collect a debt, nor may they pretend to be law enforcement agents or threaten you with arrest. They also cannot contact you before 8 a.m. or after 9 p.m. without your permission.910

Debts fall under a statute of limitations—what's called time-barred. If you think this could be the case in your situation, do not admit to the debt or discuss any settlement without legal advice. Taking even the smallest step could void the statute of limitations and restart the clock.

Debt collection is a legitimate business. If a debt collector contacts you, it’s not necessarily abusive. Many collectors are honest people who are just trying to do their jobs and will work with you to create a plan to help you repay your debt, whether that means a payment in full, a series of monthly payments, or even a reduced settlement.

How Can a Debt Collector Contact Me?

A debt collector can contact you by calling you, emailing you, or sending mail to you. A debt collector cannot contact you at work or outside the hours of 8 a.m. to 9 p.m.11

Can a Debt Collector Take Money From my Paycheck?

A debt collector cannot take money from your paycheck unless they have authorization to garnish your wages through a court order. It is important to try to pay off your debts to a debt collector before they take legal action.

Where Do I Report a Debt Collector?

If you want to report a debt collector for potentially illegal activity, you can contact the Federal Trade Commission, the Consumer Financial Protection Bureau, or your state attorney general.

The Bottom Line

If you are struggling with debt that you are unable to pay, you have several options, including filing for bankruptcy or negotiating a settlement with the lender. However, many of your options have downsides to consider as well, such as the fact that your credit score will likely decline. Consider consulting with a professional financial advisor to review all the options for managing your debt situation.

We collect Foreign Country and Out of State Judgments- A little info about them:

Enforcing Foreign Judgments in California

Foreign Judgments may be enforced in California in the same manner as California judgments. However, before a foreign judgment may be enforced, it must be recognized by the California Courts. The procedure for recognition of the foreign judgment depends on whether the foreign judgment is classified as a sister state judgment or a foreign country money judgment.

A sister state judgment is defined as “that part of any judgment, decree, or order of a court of a state of the United States, other than California, which requires the payment of money, but does not include a support order as defined in Section 155 of the Family Code.” Cal. Code of Civ. Proc. § 1710.10. A foreign-country judgment, on the other hand, means “a judgment of a court of a foreign country” and includes “a judgment by any Indian tribe recognized by the government of the United States.” Cal. Code of Civ. Proc. § 1714(b). A ’Foreign Country’ means a government other than any of the following:

(1) The United States.
(2) A state, district, commonwealth, territory, or insular possession of the United States.
(3) Any other government with regard to which the decision in this state as to whether to recognize a judgment of the government’s courts is initially subject to determination under the Full Faith and Credit Clause of the United States Constitution.

Cal. Code of Civ. Proc. § 1714(a).

Subject to some exceptions, California will recognize a foreign-country judgment to the extent that the judgment both: (1) grants or denies recovery of a sum of money; and under the law of the foreign country where rendered, is final, conclusive, and enforceable. Cal. Code of Civ. Proc. §1715(a). California, however, will not recognize a foreign-country judgment even if the judgment grants or denies recovery of a sum of money, to the extent the judgment is for taxes, a fine, or a penalty. Cal. Code of Civ. Proc. §1715(b).

The procedure for recognition of a sister state judgment is different than that for recognition of a foreign-country money judgment. The judgment creditor with a sister state judgment simply files an application with the superior court in the county where the judgment debtor resides, or, if no judgment debtor resides in the states, in any county, requesting that the judgment be recognized. Cal. Code of Civ. Proc. §§1710.15(a) and 1710.20(a) and (b).

The application for recognition shall be executed under oath and shall include all of the following:
(1) A statement that an action in this state on the sister state judgment is not barred by the applicable statute of limitations.
(2) A statement, based on the applicant’s information and belief, that no stay of enforcement of the sister state judgment is currently in effect in the sister state.
(3) A statement of the amount remaining unpaid under the sister state judgment and, if accrued interest is to be included in the California judgment, a statement of the amount of interest accrued on the sister state judgment (computed at the rate of interest applicable to the judgment under the law of the sister state), a statement of the rate of interest applicable to the judgment under the law of the sister state, and a citation to the law of the sister state establishing the rate of interest.
(4) A statement that no action based on the sister state judgment is currently pending in any court in this state and that no judgment has previously been entered in any proceeding in this state.
(5) Where the judgment debtor is an individual, a statement setting forth the name and last known residence address of the judgment debtor. Where the judgment debtor is a corporation, a statement of the corporation’s name, place of incorporation, and whether the corporation, if foreign, has qualified to do business in California. Where the judgment debtor is a partnership, a statement of the name of the partnership, whether it is a foreign partnership, and, if it is a foreign partnership, whether it has filed a statement pursuant to Section 15800 of the Corporation Code designating an agent for service of process.
(6) A statement setting forth the name and address of the judgment creditor.

Cal. Code of Civ. Proc. 1710.15(b). In addition to the above-referenced statements, the application for recognition shall also include a properly authenticated copy of the sister state judgment. Cal. Code of Civ. Proc. §1710.15(c). The California Judicial Council has approved Form Number EJ-105 which may be used in applying for recognition of a sister state judgment.

Upon the filing of the application for recognition, the clerk shall enter a judgment based on the application in the amount remaining unpaid under the sister state judgment, plus the amount of interest accrued on the sister state judgment and the amount of the fee for filing the application for entry of the sister state judgment. Cal. Code of Civ. Proc. § 1710.25(a). Entry of the judgment is made in the same manner as entry of an original judgment of the California court. Cal. Code of Civ. Proc. §1710.25(b).

Notice of the application for recognition of a sister state judgment is not required to be served on the judgment debtor prior to entry of the judgment, however, once the judgment has been recognized and entered as a judgment with the court, the judgment creditor is required to serve a notice of entry of judgment promptly upon the judgment debtor in the manner provided for service of summons (Cal. Code of Civ. Proc. §§415.10, et seq.). Cal. Code of Civ. Proc. § 1710.30(a). The notice shall be in the form prescribed by the Judicial Council and shall inform the judgment debtor that the judgment debtor has 30 days within which to make a motion to vacate the judgment. Id. The Judicial Council has approved Form Number EJ-110 which may be used to provide notice of entry of judgment.

A writ of execution cannot be issued and the judgment creditor cannot begin enforcement of the recognized judgment until at least 30 days after the judgment creditor serves notice of entry of the judgment on the judgment debtor. Cal. Code of Civ. Proc. §1710.45(a). Not later than 30 days after service of notice of entry of judgment upon the judgment debtor, the judgment debtor may file a motion to vacate the judgment based “on any ground which would be a defense to an action in this state on the sister state judgment, including the ground that the amount of interest accrued on the sister state judgment and included in the judgment entered . . . is incorrect.” Cal. Code of Civ. Proc. §1710.40(a).

The judgment debtor’s filing a motion to vacate the judgment can be a basis for the court to grant a stay of enforcement of the judgment. The court may also grant a stay of enforcement where:

(1) An appeal from the sister state judgment is pending or may be taken in the state which originally rendered the judgment. Under this paragraph, enforcement shall be stayed until the proceedings on appeal have been concluded or the time for appeal has expired.
(2) A stay of enforcement of the sister state judgment has been granted in the sister state. Under this paragraph, enforcement shall be stayed until the sister state stay of enforcement expires or is vacated.
* * *
(4) Any other circumstance exists where the interests of justice require a stay of enforcement.
Cal. Code of Civ. Proc. §1710.50(a).

If no stay has been entered and more than 30 days have passed from the date when the judgment debtor was served with notice of entry of judgment, the recognized judgment “shall have the same effect as an original money judgment of the court and may be enforced or satisfied in like manner.” Cal. Code of Civ. Proc. §1710.35.

Where a sister state judgment may be entered by the clerk upon filing of an application, recognition of a foreign country money judgment must be initiated either by the filing of an original matter or may be raised by counterclaim, cross-claim, or affirmative defense. Cal. Code of Civ. Proc. § 1718. The party seeking recognition of a foreign-country judgment has the burden of establishing that the foreign-country judgment is entitled to recognition. Cal. Code of Civ. Proc. § 1715(c).

To the extent the foreign-country judgment grants or denies recovery of a sum of money and, under the law of the foreign country where rendered, is final, conclusive, and enforceable, and is not for taxes, a fine, or penalty, California shall recognized such a judgment unless:

(1) The judgment was rendered under a judicial system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law.
(2) The foreign court did not have personal jurisdiction over the subject matter.
(3) The foreign court did not have jurisdiction over the subject matter.
Cal. Code of Civ. Proc. § 1716(b). In addition to the above-referenced basis by which a California court may not recognize a foreign-country judgment, a court in California is not required to recognize a foreign-country judgment if any of the following apply:
(1) The defendant in the proceeding in the foreign court did not receive notice of the proceeding in sufficient time to enable the defendant to defend.
(2) The judgment was obtained by fraud that deprived the losing party of an adequate opportunity to present its case.
(3) The judgment of the cause of action or claim for relief upon which the judgment is based is repugnant to the public policy of the State of California or the United States.
(4) The judgment conflicts with another final and conclusive judgment.
(5) The proceeding in the foreign court was contrary to an agreement between the parties under which the dispute in question was to be determined otherwise than by proceedings in that foreign court.
(6) In the case of jurisdiction based only on personal service, the foreign court was a seriously inconvenient forum for the trial of the action.
(7) The judgment was rendered in circumstances that raise substantial doubt about the integrity of the rendering court with respect to the judgment.
(8) The specific proceeding in the foreign court leading to the judgment was not compatible with the requirements of due process of law.
(9) The judgment includes recovery for a claim of defamation unless the court determines that the defamation law applied by the foreign court provided at least as much protection for freedom of speech and the press as provided by both the United States and California Constitutions.

Cal. Code of Civ. Proc. § 1716(c).

While the initial burden is on the party seeking recognition to establish that the foreign judgment meets the requirements of Cal. Code of Civ. Proc. §1715, the party resisting recognition has the burden of establishing a ground for non-recognition exists. Cal. Code of Civ. Proc. §1716(d).

With regards to the requirement that the foreign court had personal jurisdiction over the defendant, a foreign-country judgment shall not be refused recognition for lack of personal jurisdiction if any of the following apply:
(1) The defendant was served with process personally in the foreign country.
(2) The defendant voluntarily appeared in the proceeding, other than for the purpose of protecting property seized or threatened with seizure in the proceeding or of contesting the jurisdiction of the court over the defendant.
(3) The defendant, before the commencement of the proceeding, had agreed to submit to the jurisdiction of the foreign court with respect to the subject matter involved.
(4) The defendant was domiciled in the foreign country when the proceeding was instituted or was a corporation or other form of business organization that had its principal place of business in, or was organized under the laws of, the foreign country.
(5) The defendant had a business office in the foreign country and the proceeding in the foreign court involved a cause of action or claim for relief arising out of business done by the defendant through that office in the foreign country.
(6) The defendant operated a motor vehicle or airplane in the foreign country and the proceeding involved a cause of action or claim for relief arising out of that operation.

Cal. Code of Civ. Proc. § 1717(a). The above-referenced list is not exclusive and the courts of California are free to recognize bases of personal jurisdiction other than those listed above as sufficient to support a foreign-country judgment. Cal. Code of Civ. Proc. § 1717(b).

Once a California court finds that the foreign-country judgment is entitled to recognition, to the extent that the foreign-country judgment grants or denies recovery of a sum of money, the foreign-country judgment is both:
(a) Conclusive between the parties to the same extent as the judgment of a sister state entitled to full faith and credit in this state would be conclusive.
(b) Enforceable in the same manner and to the same extent as a judgment rendered in California.
Cal. Code of Civ. Proc. §1719.

To the extent that the foreign-country judgment is rendered in a currency other than the currency of the United States, the Uniform Foreign-Money Claims Act (“UFMCA”) provides that except in the case of assessed costs, “a judgment or award on a foreign-money claim shall be stated in an amount of the money of the claim.” Cal. Code of Civ. Proc. § 676.7(a). Such a judgment is payable in that foreign money or, at the option of the judgment debtor, “in the amount of United States dollars which will purchase that foreign money on the conversion date at a bank-offered spot rate.” Cal. Code of Civ. Proc. §676.7(b). Costs assessed by the California court shall be entered in United States dollars. Cal. Code of Civ. Proc. §676.7(c).

When seeking recognition of a foreign-country judgment that is stated in the money of the foreign country, California law provides that the judgment rendered by a California court substantially in the following form complies with the requirements of the UFMCA:

“IT IS ADJUDGED AND ORDERED, that Defendant (insert name) pay to Plaintiff (insert name) the sum of (insert amount in the foreign money) plus interest on that sum at the rate of (insert rate – see Section 676.9) percent a year or, at the option of the judgment debtor, the number of United States dollars which will purchase the (insert name of foreign money) with interest due, at a bank-offered spot rate at or near the close of business on the banking day next before or near the close of business on the banking day next before the day of payment, together with assessed costs of (insert amount) United States dollars.”

Cal. Code of Civ. Proc. §676.7(f).

California Code of Civil Procedure section 676.9 provides that with respect to a foreign-money claim, recovery of pre-judgment or pre-award interest and the rate of interest to be applied in the action or distribution proceeding, except as provided in subdivision (b), are matters of the substantive law governing the right to recovery under the conflict-of-laws rules of California. Cal. Code of Civ. Proc. §676.9(a). Subdivision (b) requires the court or an arbitrator to “increase or decrease the amount of pre-judgment or pre-award interest otherwise payable in a judgment or award in foreign money to the extent required by the law of [California] governing failure to make or accept an offer of settlement or offer of judgment, or conduct by a party or its attorney causing undue delay or expense.” Cal. Code of Civ. Proc. §676.9(b).

The judgment or award entered on a foreign-money claim bears interest at the rate applicable to judgments of California. Cal. Code of Civ. Proc. § 676.9(c). A “foreign-money claim” means “a claim upon an obligation to pay, or a claim for recovery of a loss, expressed in or measured by a foreign money,” and for the purposes of this article would include a foreign judgment expressed in a foreign money. Cal. Code of Civ. Proc. §676.1(6).

Once a foreign-country money judgment is recognized and judgment is entered on it, or a judgment is entered on a sister-state judgment under the full faith and credit clause of the United States Constitution, either judgment may be enforced in the same way and in the same manner as a California State judgment.

What should you look for and why we have everything our clients need.

What makes the best collection agency for your business?  A great collection partner maximizes the amount of debt collected and returned to you, be transparent in their methods and reporting, and help maintain a positive relationship with your clients.  With those goals in mind, here are 6 tips to selecting the right collection partner.

1)   Consider total ROI, not just initial price

The collection percentage charged by an agency is just one factor to consider when deciding which partner to choose.  While it may be tempting to compare agencies based solely on that percentage, what’s most important is how much cash they actually put back into your wallet.  Many agencies charge a straight percentage of what they are able to collect, but the results they achieve on the number of accounts they actually collect on vary widely.  A low agency percentage incentivizes work on easy to collect debt and may mean that other debt is ignored.  In fact, a collection agency with a low fee rate and a low collection percentage won’t give as high a return as an agency with a higher fee rate and better recovery rate.  To illustrate this, take a look at this example:

Even though Agency A charges a much lower fee rate, Agency B would still be a better choice because the cash return to the company is higher. When shopping for a collection agency, ask for an industry analysis to compare what type of results they have established  for other companies in your industry.  That knowledge can help you make a decision based on real returns and not perceived expense.

2)   Insist on Customer Service

Gone are the days of menacing bill collectors threatening to break the knee caps of delinquent debtors.  Top modern agencies focus on making it easier for clients to pay through multiple channels, payment plans, and early intervention.  Look for a partner that can help you supplement your in-house process with payment notices early in the life cycle of a debt.

Part of outstanding customer service means ensuring that all calls are made from a domestic collection office.  Outsourcing is common in the modern business world, but should not be used in the collection industry due to the sensitive nature of the relationship between your business and your clients.  Domestic call centers pay dividends in both collection results and customer satisfaction.  Avoid debtor complaints by partnering with a collection agency with a local or national presence.

3)   Find partners, not collectors

Just like a marketing consultant works with a company to create better sales results, a collection agency partner should work with you to develop a system for managing your accounts receivable to increase your bottom line.  Collection Agents are experts at debt recovery, and should work with you to improve your in-house collection efforts.  For example, many collection agencies will help mitigate risk by conducting credit checks on potential customers, or help institute pre-collection measures that send out payment reminders at regular intervals.

4)   Look at their track record

As with any purchasing decision, the best information comes from people who have used their services.  Ask for referrals from organizations or individuals that would know best.  Some good resources to turn to for information include:

Google Reviews or Social Media

Collection laws vary from industry to industry, so it makes sense to find an organization with experience in your specific field.  They will often be better equipped to deal with that industry’s unique challenges and use that information to improve recovery while maintaining a compliance system.

5)   Check for required Licensing

Under collection agency laws in California, agencies are required to have a business license in the city in which they are located. For businesses that deal with in-state clients, a collection agency with a local license is more than satisfactory.  If your business deals nationally, however, you will need a collection agency that’s licensed to practice in all areas where your customers live.

6)   Evaluate Reporting

A common pitfall of many collection agencies is a failure to regularly report collection rates.  You should expect at least a monthly statement and payment on any accounts, and access to an online portal where you can view recovery rates at any time.

The right collection company can do wonders for your cash flow.   Completing a little bit of due diligence before making a final decision will ensure you have a partner that will get you the best results.

Business and Commercial Debt Collection Explained

Understanding Small Business Debt Collection

At some point, every company will encounter a situation where a client doesn’t pay on time, refuses to pay altogether, or can’t afford to pay the full amount for services rendered. While each of these situations is notably frustrating, it’s important that you respond in the appropriate manner. How you respond will not only impact your chances of collecting on the debt, but it’ll also reflect on your brand image.

If you’ve been around for any measure of time, then you likely know that small business debt collection typically involves money owed from customers who fall into one of three categories:

• Customers who will go to any lengths necessary to avoid paying.

• Customers who have lots of payments due at once and pay them off sporadically.

• Customers who normally pay on time, but can’t because of financial issues.

“In general, you will want to ensure that your clients and customers fall into the last two categories,” FindLaw.com explains. “You will be able to manage and work with those that fall into the last two categories because they have a history of making full or partial payments. As a small business owner, however, you need to be able to devise a strategy and method for figuring out which clients and customers fall into the first category.”

It’s also important to recognize that not all debts and delinquent payments are the same. For example, a $250 debt from a long-time client who has never missed a payment is not equal to a $15,000 debt from a new client who has yet to pay you for any services rendered. You can’t take a narrow approach to debt collection. Everything happens on a per-case basis and you must be willing to adapt to the circumstances.

6 Tips for Getting Your Clients to Pay Up

It doesn’t matter if the client is someone you know personally and have a great relationship with or a brand new client that you’re angry with — you have an obligation and a right to collect the money you’re owed. The key is to be strategic in how you approach these situations.

1. Stay Calm

When you’ve provided services for a client and they don’t pay you on time, your natural inclination is to be infuriated (and you have a right to be upset). But it’s imperative that you take a deep breath and stay calm. The angrier you get, the less likely that you’ll collect on the full debt. The client will feel your wrath, will take it personally, and won’t feel like cooperating (at least not in at timely manner).

“Your mental state has a strong impact both on how you handle the debtor and how they respond to you,” collections expert Bob Tharnish says. “Treat each call as if it was your first call of a very good day. Put a smile on your face. If you were irritated on the previous call, take a few minutes to calm yourself and start afresh. The debtor will respond to your tone. Your upbeat mood will be contagious and you are likely to get a more positive response from the debtor.”

2. Know Your Rights

If you don’t have any professional training in accounts receivable or debt collection, then you’re probably blindly fumbling your way through the process of collecting payments. The sooner you educate yourself on your rights and legal options, the better off you’ll be. Not only will you understand the actions that can and can’t be taken, but you’ll also become more confident in your interactions with customers.

For example, did you know that you can legally search for someone’s social security number if that individual is evading your debt collection efforts? While there’s no free online lookup service, you can go through the legal steps to find someone’s social security number so that you can move things along.

3. Document Everything

Few things are as important as documentation in a small business debt collection situation. Should the debt ever lead to a legal battle in court, your ability to point to documentation will be very helpful.

Every time you talk to a client on the phone, record the phone call and take notes. Certify and copy every letter you send in the mail. Save email correspondence. Log visits you make to the client’s office or home. All of this information could prove helpful.

4. Avoid Harassing

There’s nothing helpful about harassing a customer who owes you money. While persistence plays an important role in collecting on a debt, there’s a fine line between checking in and pestering.

Harassing looks like calling a customer every single morning for 60 straight days and screaming at them. Persistence looks like calling every seven to ten days and giving the client some options by which they can start paying off the debt.

5. Offer to Settle for Less

Let’s say a client owes you $10,000 and is 120 days past due. You’ve been trying to collect on this debt for four months and feel pretty sure you’re never going to see the money. Before simply writing the debt off, it’s always a good idea to offer a settlement for less than you’re owed.

While the delinquent payment is stressful to you, rest assured that it’s causing more anxiety for the client. It’s probably keeping them up at night. If you come to them and say you’re willing to take $5,000, they may jump at the chance to get it off their books. And considering that you already counted it as a lost cause, that’s a $5,000 win for you. You’ll never know until you ask!

6. Hire a Collection Agency

If you have a lot of outstanding debt owed to you and you’re spending a lot of time trying to collect on it, it may be worth your time to hire a collection agency. Not only will this save you time and possibly allow for better results, but it could keep you out of legal trouble.

“The Fair Debt Collection Practices Act (FDCPA) became law in 1977, and it governs how debts may be collected,” explains Mike Periu, president of Proximo, LLC. “The law mainly regulates companies that are engaged in the business of collecting debts on behalf of clients or that buy debt at a discount price with the goal of collecting on it.”

Registered debt collection agencies understand the intricacies of the FDCPA and you can avoid putting yourself in a compromising position by working with them.

Learn How to Walk the Line

Debt collection isn’t fun. Sometimes you feel like you’re being a pushover and other times you feel as if you’re being too harsh. The goal should be to walk the line well enough that people take you seriously and pay up when they’re able. You’ll occasionally have to write off bad debt, but follow the aforementioned tips and you’ll have some success.

HIRE OUR COMPANY-WE WILL MAKE IT LOOK LIKE A PIECE OF CAKE. WE WIN!

How to collect Small Business Debt before hiring us.

Small businesses rely on a healthy flow of income to remain in business—especially since over 50% of new businesses fail within the first five years. For small businesses, a bad debt can mean the difference between profitability and net losses. For a small business, collecting debts can be a difficult and, occasionally, litigious process. There are a number of things you can do to increase your chances of being paid. Read on to find out how to avoid bad debts, manage overdue payments and collect debts.

1

Develop a payment policy. Before you provide any services or goods, contract with your customer so they understand what they are responsible for paying and when. Make sure all document language is clear. Discuss the account with the customer so you can be sure they are familiar with any charged amounts and due dates. Payment terms need to be agreed on by both parties.

• Consider adopting a late payment fee to encourage on-time payments. You may choose to charge a percentage of the total bill when payments become delinquent—2% is typical. Make sure all late fee policies are included in your contract or payment policy.
• You may prefer to ask for at least 50% of payment upfront. This ensures you at least receive something in exchange for your time and efforts.
• Do research about collecting interest. Federal and state laws regulate the collection of interest on debts. Always make sure that any interest you charge is lawful and included in your payment policy to avoid debt forfeiture or a fine. You can check usa.gov for your state's usury laws.
• You can also check your state's attorney general website for information on legal interest rates and legal practices in your state.

2

List the due date on every bill you send. Some invoices state, "payment due upon receipt." You may also use "net 15 days," "net 30 days" or any other period of time in which you expect someone to remit payment.

• Placing a due date on a bill encourages your customer to include it in a current or upcoming billing cycle. If you do not place a due date on the bill, the business or individual may wait a month or two before paying, especially if bills are tight.
• Don't wait 30 days from the date of service or delivery of the product to send out a bill. Bill every 15 to 30 days. The sooner you send out the bill, the more likely you will get paid sooner.

3

Send reminder bills. When a payment becomes past due, immediately send a reminder noting the amount owed as well as the fact that payment is now past due. Many customers are so busy that they simply forget a bill hasn’t been paid. They will often pay it as soon as they realize payment is past due.

• Keep a record of all contact with the debtor. You will need the dates and times of your calls, letters and any other communication about the late payment, in case of legal action. You may also need to address this information when you contact the debtor.

4

Keep a contact with each company or customer. Make sure you have relevant contact information, such as address, telephone number and extension number, if available.It is also good to check in with your business contacts regularly. Engaged business relationships promote a mutual desire to fulfill transactions.

• Address each bill directly to the person who makes financial decisions in a business or the person responsible for the account.
• If you don’t have a contact for a business transaction, you can usually call the front desk and be connected to Accounts Payable.

5

Create a procedure for dealing with debts. You will need to decide what happens when payments are late. Generally, you first send out a reminder, then call the customer or business that is late with a payment, follow up, try to negotiate and then take it to collections or pursue legal action if the debt remains unpaid. Everyone in your company should understand the process so they know where to direct those who owe debts when they reach out to you.