What is a Debt Collection Agency?
Debt collection agencies or debt collectors are companies that collect payments for the money owed by individuals or business entities. They are usually agents of creditors who act as another party to collect the debts owed by another individual or business. There are the first party agencies and the third-party agencies that act as debt collector agencies. Debt collection agencies play the role of the middleman between the creditor and the debtor.
First Party and Third Party Agencies
The first party agency is often the subsidiary or part of the creditor and of the main contract with the debtor. Third party debt collection agencies are the companies that the creditor hires to collect the debts owed to them with a corresponding fee. The money to be paid to the collection agency would be based on the age of the account, the type of debt, and the amount collected by the third party agency. This typically ranges from 10% to 50% and abides by the policy, No collection, no fee.
How the Debt Collection Agency Works
Debt collectors often work in debt collection agencies. They act as middlemen to collect every individual’s debt for a business entity or another individual. The debt collectors make money when they are able to collect the money owed by the debtors. The debt collection agencies get typically 25% to 50% of the amount collected. The debts being collected by debt collection agencies vary for all types: business debt, credit card debt, automobile debt, student loan debt, personal loan debt, medical debt, and even unpaid phone bills and utility. The more money they can collect from the debtors, the more money they earn. There are also “debt buyers” who participate in a bidding process. The creditors gather the debt accounts into packages, and the bidding process comes in. The debt buyers try to buy the packages at face value. For example, a $1000 debt can be bought by the buyer at $40, paying 4 cents for every dollar. The value also depends on the age of the account. The older the account, the lesser it costs, since it has a lower probability of it being collected.
How to Find an Eligible Debt Collection Agency
There are a lot of things to consider when getting an agency as another party to do the dirty job for you. Collecting delinquent accounts is a hard job, and these debt collectors are trained and skilled to do the job for you. They often have this awful reputation of harassing debtors, but some are more polite and are just performing their job. You can research about the debt collection agency’s performance and referrals. Compare the costs and fees for every debt collection agency. Rates may vary and you might likely get what matches your budget for debt collection. Also, check if the debt collection agency uses “Skip tracing”. This is where they possess an existing database to locate the current address or whereabouts of the debtors. All these are achievable if you can do a background check on each of the debt collecting agencies you are eyeing for the job.