Debt is an all too common aspect of financial institutions. Too often, companies in this line of business find themselves struggling with debt collection.
For firms facing difficulties with debt collection, turning to third-party service providers to collect unpaid dues has become a go-to solution.
Before discussing whether outsourcing debt collection is the more viable option, it’s essential first to understand debt collection and how it works.
Read about it below.
What is debt collection?
Debt collection refers to the process of pursuing payments of outstanding debts owed by individuals or businesses.
When they borrow money, these debtors contract with financial institutions, such as banks and private lenders. This agreement obligates debtors to settle their loans within a specified period.
However, there are times when they have difficulties fulfilling their financial obligations or neglect them altogether.
In many cases, creditors – the institutions lending money – will first attempt to initiate direct contact with the debtors. They will remind them of their overdue payments and request immediate resettlement.
If debtors fail to respond or make the necessary payments after these initial attempts, creditors have no other choice but to conduct debt collection and recover the outstanding debt.
How does the debt collection process work?
The debt collection process involves several steps aimed at helping creditors retrieve the money debtors owe them.
Below is an overview of the typical debt collection process:
Before initiating the collection process, the creditor evaluates the debt’s details. These details include the outstanding balance, the debtor’s information, and any past communication records.
The debt collection agency formally notifies the debtor of their outstanding payment through a collection letter or phone call. The notification includes the amount owed, the creditor’s details, and a payment request.
If the debtor responds, the agency may negotiate to establish a repayment plan suitable for both parties. This may involve settling for a reduced lump sum or agreeing on installments.
The debt collection agency documents all communication and agreements throughout the process. This practice ensures transparency and legal compliance.
If the debtor fails to respond or refuses to pay, the debt collection agency may escalate the matter. It will begin using more assertive tactics, such as reporting the debt to credit bureaus or initiating legal action.
Ideally, the debt collection process culminates in a successful resolution. The debtor will pay the outstanding balance in full or as per the agreed-upon terms.
Is outsourced debt collection better?
Creditors can seek the assistance of a debt collection agency to help them recover funds when debts remain unpaid for extended periods.
Bringing in debt collection professionals rather than pursuing debtors themselves gives businesses many advantages.
Access to expertise
Debt collection agencies – and BPOs with debt collection services – are well-versed in the nuances of debt recovery.
They have skilled professionals who understand the industry’s regulations, negotiation techniques, and legal aspects, increasing the likelihood of successful collections.
Higher recovery rates
Debt collection agencies employ proven strategies to maximize the chances of getting paid. Their experience handling diverse cases equips them to handle difficult debtors and improve overall recovery rates.
Less time and resource-intensive
Debt collection can be a time-consuming process that demands substantial resources. By outsourcing this responsibility, creditors can focus on their core business activities, leaving the debt recovery task to the experts.
Assured compliance and legal protection
Professional debt collection agencies adhere to the relevant debt collection laws and regulations. This ensures that the collection process is conducted ethically, reducing the risk of potential legal repercussions.
Let your Cloudstaff do the debt collection for you
Cloudstaff is one of the Philippines’ leading providers of outsourced services, including debt collection. It has over 15 years of experience providing outsourcing solutions to businesses and helping them achieve more with less.
The company employs over 4,800 staff across 13 different locations around the world. Combining the right staff with the best technologies and world-class facilities allows Cloudstaff to deliver smart solutions and achieve high client satisfaction.
Connect with Cloudstaff and see how they can help you!