Debt agency

Helene Mueller
eCollect support team

A debt agency is an organisation, which pursues and recovers bad debts and late payments from consumers (the debtors), on behalf of a first-party business (the original creditor). The debtors can be either individuals or corporations. Depending on the subject of debt, the debt collection agency can go after consumer or commercial (business-to-business) debts. Generally, there are three types of debt collection agencies. If the collection agency is a subsidiary or represents a subdivision in creditor’s organisation, the debt recovery agency is known as “first-party”. The DCA (Debt Collection Agency) can also perform debt purchase, where the same agency will be named as a buyer, a debt-buying agency or a debt purchaser. If the recovery company only acts on behalf of the creditor and is not part of his company, it is named as a third-party debt agency. Such DCA takes no part in the original contract signed between the two parties- the creditor and the second party (debtor). The recovery services a debt collection company offers are always paid, but it depends on the DCA whether it will request its commission fee payment from the debtor, or from the creditor. Law does not regulate this aspect- it is legally allowed the DCA to choose who to charge. DCA’s actions, however, have to be in strict compliance with country’s national rules and laws.

Debt agency- tools and service

A debt agency implements the whole debt collection process using different recovery tools and services. The DCA employs with various prelegal debt recovery methods and strategies including the generation and distribution of oral and written payment reminders (phone calls, voice messages, fax messages, emails, letters).

Most debt agencies also offer a full range of services for the creditors:

  • Tracing and tracking the debtor prior to the first contact with the subject of debt;
  • Multichannel communication (written and oral);
  • Sending different reminder letters to the debtor: late payment demand letters, letters before actions, etc.;
  • Involving debt recovery solicitors, if needed, to proceed with legal actions;
  • Legal actions: Legal attorneys can transfer the debtor’s case to court to continue with court actions. They can also suggest wage garnishment, seizure of personal belongings, even bankruptcy.

Business and consumer collection debt agency

A consumer collection debt agency focuses mainly on individual debts. Such debts are usually credit card loans or derive from unpaid student loans, membership fees, medical bills, car loans, etc. Sometimes falling behind with a payment is not deliberate. This is why a debt collection agency will first try to contact the debtor before proceeding with more serious actions (legal and court proceedings). Usually, the late payment turns out to be forgotten. In other cases, the consumer has fallen into debt and cannot manage to cover the amount and settle the debt.

Along with the consumer debt collection, a debt recovery agency can offer business debt recovery as well. The B2B collection process comprises chasing delinquent corporate payments and late invoices. Business loans are more dangerous for creditors, as the amounts are sufficiently larger than in consumer loans. Corporate debts most often derive from bad management plan, where the entrepreneur borrows bigger amount than he can afford. In some countries, a business collection debt agency has to comply with laws, which are different from the regulations for an individual debt recovery. E.g. in the US the Fair Debt Collection Practices Act is valid only for consumer debts and consumer debt collection.

Debt agency and payment plans

A debt agency is authorised to offer different negotiation payment plans to the debtor. Depending on whether the debtor is an individual or a business organisation, the plan can be under the name of Individual Voluntary Arrangement or Company Voluntary Arrangement, both valid for the United Kingdom. In Scotland, such plans are named as Debt Arrangement Scheme or Debt Payment Programme (in compliance with the Scottish Debt Arrangement and Attachment Act-ext. link 8). For both Scotland and UK is valid the DMP (Debt Management Plan).

Such negotiation plans aim to facilitate the subject of debt. If a debt arrangement plan has been settled, the debtor can pay affordable equal sums per month until the debt is cleared. When a payment plan is to be made, another contract is signed between the subject debt and the creditor. The debt agency and its lawyers formalise the agreement and present it to the debtor on behalf of the original lender. As this document is bound by law, it brings further security for both sides: the creditor will not have to remind the debtor further unless he falls behind on the payments again. The debtor will have to comply with the terms of the agreement, otherwise, any insubordination to the terms will be considered as breach and violation of the contract and the debtor will be liable before law and court.

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