The Debt Recovery Process
Wilson Cole | January 23, 2023
With one minor but crucial exception, debt recovery and collection are identical concepts.
What makes a difference? It depends on the goal of your debt collector.
Debt collection is a creditor's endeavor to recoup unpaid loans and consumer credit from customers.
Debt recovery is the process by which a creditor engages a third party, known as a collection service, to focus on obtaining payment for an outstanding loan such as a credit card bill.
Debt recovery is crucial because it affects your credit score immediately.
A debt recovery service contacting you indicates that there is documentation of your loan default and ongoing delinquencies. Your credit score is harmed as a result of these defaults, which may make it more difficult for you to receive a loan in the future.
The process of recovering debt involves a number of steps, so it's critical to understand what to anticipate when a debt collection agent contacts you.
In fact, legislation such as the Fair Debt Collection Practices Act (FDCPA) has been designed to regulate the debt collection process and guarantee that consumers are protected from harassing debt recovery techniques because financial debt may be a tricky position.
What is the debt recovery process?
Once the debt has been turned over to a collection agency, the creditor will notify the debt collector of your failure to make payments in accordance with the terms of the agreement and will provide them with the claim information and supporting evidence.
The recovery procedure starts with a demand letter being sent to the debtor and an acknowledgement letter being delivered to the client after the claim has been examined and accepted by the debt collection firm or creditor who enlisted the collection service.
The account is now operational, and the following are the steps involved in debt recovery:
- A telephone call is made to try to set up payment for the unpaid debt and make sure the payments are received.
- The debt collection agency informs the customer of the data regarding the claim's transmission to the associated attorneys if the debtor refuses to comply with the debt resolution process.
- Client signs and sends the forwarded claim to the linked attorneys; if the attorneys suggest taking legal action, suit criteria are provided.
- The lawsuit is prepared and filed if the client approves the legal action and the suit's prerequisites. The debt collection service works on the claim for an extra 60 days before closing it if the client decides against taking legal action.
- Service of complaint. A trial date is chosen and the discovery procedure starts if the debtor submits a response. The lawyers submit a default judgment if the debtor doesn't reply.
- When a client wins a judgment, the lawyers will submit a Writ of Attachment, look for the debtor's assets, and start the process of collecting the judgment (bank levies, garnishments, liens, etc.).
What is the Fair Debt Collection Practices Act?
Consumers are protected by the Fair Debt Collection Practices Act (FDCPA), a piece of government legislation, from unethical and illegal debt collection practices. In response to many accusations of unfair business practices, the Federal Trade Commission (FTC) passed it on September 20, 1977.
A debt collector is prohibited from doing the following under the FDCPA:
- Call you before 8 a.m. a disproportionately high number of times. or later than 9 p.m., or if your boss objects, get in touch with you at work.
- Give unbiased third parties information about your loans.
- Use obscene, offensive, or derogatory language.
- Lie about the details of the debt or imply that you would spread incorrect information about your credit.
- Make additional contact with you following the delivery of a cease-and-desist letter.
Why tap a debt recovery specialist?
In most cases, hiring a debt collection service is a last resort.
However, it can be wise to seek professional assistance earlier on through debt recovery, especially if you have few internal resources.
You could avoid a debtor from becoming a significant defaulter, saving time and money later on, by making sure that your credit control systems are managed correctly and efficiently.
1. Professionals with tested and proven experience
You can benefit from significant professional skills and practical understanding of the most effective strategies to achieve successful outcomes by entrusting the recovery of your debt to a seasoned third party provider.
The key to efficient credit control is to stay on top of things and have a thorough awareness of when and how to move things along.
If you have a debtor that is unable or unwilling to pay, simply sending statements or reminder letters will probably not be enough to get the job done.
The obvious next steps are a phone follow-up or a well prepared letter referencing prospective legal action; if either of those don't work, more drastic measures should be taken.
2. More than capable to take legal action if necessary
The next stage is legal action if conventional credit management procedures are insufficient to recover a debt. When that happens, having a professional's knowledge and experience on your side definitely pays off.
A skilled debt collection service will be aware of your alternatives and how to proceed. In some circumstances, launching legal action alone is sufficient to convince a debtor to pay their past-due obligation.
For instance, many companies may be desperate to avoid the stigma of having a County Court Judgment against them, which can substantially impair their capacity to conduct business and have a negative influence on their credit rating.
How do you choose a debt recovery specialist?
The most crucial factor to take into account when selecting a debt collection firm to manage debt recovery for you is preserving your reputation, in addition to their demonstrated capacity to complete the task.
Will that business spend the time necessary to comprehend your operation, your clients, and the trade environment in which you operate?
Will they behave ethically and morally, upholding your principles and preserving your reputation?
Will they provide you with regular updates on the status of debtors to feed into your management information flow, keeping you completely informed?
If the collector you tapped checks off all the boxes, then you’re in good hands.
Wilson Cole is the founder and CEO of Adams, Evens & Ross, the nations largest credit and collection agency design exclusively for the staffing and recruiting industry. In 2008 he was inducted into INC Magazines, "INC 500" for being the CEO of Adams, Evens & Ross, the 307th fastest growing privately held company in America. This exclusive group of other INC 500 CEOs includes Bill Gates of Microsoft and Larry Ellison of Oracle.In 2007 Recruiting & Staffing Solutions Magazine's Editorial Staff named him " The Billion Dollar Man" due to the fact that he had collected or helped his clients collect more than 1 Billion dollars in past due debt over his career of almost 20 years as CEO of Adams, Evens & Ross.