When To Use A Collection Agency
What is a Collection Agency?
A collection agency is a specialized organization that acts on
behalf of a creditor to collect overdue amounts. A collection agency
usually does not take ownership of the debt but just acts on behalf
of its clients to organize the collection activity. It does not
guarantee the collection.
Why Do People Fail to Pay?
There are many reasons why people do not pay on time. A lot of
the time people just don t want to pay. Sometimes genuine financial
difficulties, particularly of a temporary nature, are among the
causes. In such cases, the person is likely to pay as soon as his
financial problems are over.
The Downside of Using a Collection Agency
The persons owing the money generally view using a collection
agency with apprehension. This makes them view the approach by a
collection agency in a negative light. This might cause them to
resist any attempts to collect money from them, even if it s genuine.
Moreover, it might result in loss of genuine and valuable customers,
from whom the money would come to you in course of time, although
they might have delayed the payment temporarily or in a particular
It is, therefore, apparent that using a collection agency should
generally be the last resort. There are a few collection agencies
that specialize in early intervention on a diplomatic basis.
Use a Collection Agency When the Case is Clear
The thing that can be inferred straightaway from the above is
that you should use a collection agency when you are reasonably
certain that the party has the capacity to pay, is obliged to pay
the amount, and is refusing or is unwilling to pay. Also the debt
should be due in fact overdue. It s always better to wait for a
short while and make your own attempts through reminders and follow
up with the party before you approach a collection agency.
When Not to Use a Collection Agency
You should also consider when it is inappropriate to use a collection
agency. There are many situations in which the debtor may have her
own defense, and initiation of any formal or legal proceedings may
become counterproductive and lead to unnecessary delays and complications.
First of all, you should consider whether the debtor the person
owing the money to you has, or thinks he has, a valid reason for
not paying. If this is the case, it is very likely that he would
be prepared for a fight even if it means a prolonged legal battle.
This works to the advantage of neither of you. In such cases, it
is better to first try and sort out the issue, if possible. Among
other things, this is going to happen if the amount in question
is under dispute. If this the case find out the cause for the dispute
and try to settle it through proper communication and discussion.
Another thing that might happen is that there is another claim against
you that the debtor is trying to adjust against the current debt.
In this case it is better to sort out the issue in totality.
Other Difficulties and Issues
Even where the debtor has no valid reason there might be circumstances
under which it might become difficult to recover the amount legally.
For example the debtor might not be solvent enough to pay the amount.
Legal recourse would only establish your right at the most, but
would not obtain the payment to you. Bankruptcy also prevents collection
The Cost of Using the Services of a Collection Agency
You must remember that using a collection agency involves payment
of fees to the agency itself. Another consideration is the fact
that legal proceedings initiated by the collection agency under
circumstances similar to the ones outlined above could make your
life more difficult and make the collection process long drawn out
and of uncertain outcome. Because of this, it is better that you
retain control over this process and over the decision as to if
and when to proceed legally.
When You Have Security
If you possess a collateral security, it is best not to proceed
legally or engage a collection agency if you can use the security
to recover your amount.
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