Getting paid on time - when to use a debt collection agency

What happens when a customer decides not to repay a loan or credit card bill and has ignored their reminders about paying? In some cases, there may be a genuine reason as to why a bill remains unpaid, but in others there may be no reason at all. If this is the case, then it may be necessary to take further action in order to reclaim the debt. Using a debt collection agency can sometimes be very effective in collecting what is due.

However, using a debt collection agency should be a ‘last resort’ after all other attempts to discuss and resolve the situation with the customer have failed to yield results. In some cases, financial hardship may be to blame for non-payment of a debt, so it can often be good for customer relations to try and reach an amicable agreement that may to help the customer get back on their feet. If, however, there is a reason to suspect that non-payment is through choice rather than circumstance, then there may be grounds to begin legal proceedings. The customer should be informed in writing that this type of action is imminent. Sometimes a jolt such as this can be enough to have the customer re-commence their payments.

If not, there are a number of advantages to consider in using a debt collection agency. For example, debt collection agencies have the time, expertise and resource required to perform the job at hand and thus can allow the creditor to concentrate on their core business. However, it should be noted that the costs involved in reclaiming a debt in this manner can sometimes be as much as 10% of the outstanding amount.

In their dealings with the customer, a polite and professional debt-collection agency may manage to retain the customer - assuming the creditor still wanted to do so, though taking legal action may mean retention is unlikely. On the other hand a less professional debt-collection agency may take a heavy-handed approach and might intimidate a customer which could in turn damage the creditors' reputation.

In some cases, a debt collection agency can act as an intermediary between the creditor and the customer in order to negotiate acceptable terms for repayment or can instruct a solicitor to act on the creditors behalf should the customer still refuse to pay. In other cases, a debt collection agency might choose to settle the debt, thus taking over the ownership and enforcement of the debt themselves.

Should you need to employ the services of a debt collection agency, you should make sure that the agency is registered with the Credit Services Association (UK) or your national regulatory body.