Collection Agencies 101: Understand How They Work

Oh yes, collection agencies. We’ve all heard of them. We all fear them. We all want to avoid them. But, what do we really know about them?”
Collection agencies, though they often seem like the enemy, are merely the messenger, working on behalf of a creditor. Below, describes the ins and outs of collection agencies, including how they work, how they make money, and how they’re hired.

What are Collection Agencies?
Collection agencies specialize in collecting overdue debt. When someone borrows money and either can’t or refuses to repay it, a collection agency moves in to recover it. They find the person who owes money, and communicate with them through phone calls and letters.

Who Hires a Collection Agency?
A collection agency is contracted through a creditor. If someone has an outstanding balance on their Visa, for example, Visa will hire a collection agency to collect. This means that the actions of collection agencies are governed by the creditor who hired them. They can’t sue or take any kind of legal action without approval from the creditor. The collection agency also cannot agree to accept a lower amount than what is owed. That decision must come from the creditor. A collection agency, however, does have the ability to agree to installation payments.
Because collection agencies are simply acting on behalf of the creditor, there is little negotiating that can be done with them. Negotiating must be done with the actual creditor.

How Soon do Collection Agencies Get to Work?
As soon as possible after a collection agency is hired, they will get to work trying to recover the debt. Their chance of recovering the debt is higher if they act quickly. The longer the debt has been outstanding, the more unlikely it is that it will ever be paid.

How do Collection Agencies Know What Debt is Most Likely to Be Repaid?
Just because a collection agency is involved doesn’t mean the debt will be recovered. Even Collection Agencies know from the get go that certain debts are probably never going to be repaid. They use several signs to figure out the likelihood of debt recovery.
First of all, they look at the validity of the debt. If a debt can be easily disputed by the consumer, chances are it will never be paid. Next, they determine how easy it is to actually locate the debtor. If the debtor can’t be found, the debt certainly can’t be collected. Lastly, the collection agency looks at the debtor’s ability to pay. Some debtors simply can’t pay their debt - there is no way around this.
If a collection agency realizes that a debtor is absolutely unable to pay, they know that their chances of collecting all - or any - of the debt is minimal.

How do Collection Agencies Make their Money?
Collection agencies certainly don’t work for free: their fee typically ranges between 25% and 60% of whatever they collect. Accounts that are particularly challenging - those that are extremely old or involve a debtor who is very hard to locate - involve a higher fee. Some collection agencies even charge per letter and phone call. These agencies are often more aggressive than those who don’t: the more phone calls they make and more letters they send, the more money they can charge.

How do People Put off Collection Agencies?
Getting calls and receiving letters from collection agencies can be embarrassing, annoying, and frustrating. Sometimes people pay just to make the collectors go away. But, if the legitimacy of the debt can be questioned, the debt should not be repaid until the questions are answered. If, for instance, someone believes the balance trying to be collected is much more than what is actually owed, they can raise questions and the collection agency will consult with the creditor before pursuing further action. Collection agencies aren’t out to get money from those who don’t really owe it.

Collection agencies work on behalf of a creditor to reel in outstanding debt. They are not responsible for negotiating debt or validating it, they are simply used as the vehicle in which it’s delivered. The most important thing to remember about collection agencies is that they can only do so much: to erase late fees, negotiate, or lower the amount owed you must talk to you creditor directly.

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