Introduction To Debt Collection: Part One
Debt collectors can be categorized into third party and in house collectors. In house collectors work directly for creditors. Many times, creditors will use a company name, address and phone number that is different from their own to fabricate the impression of an “outside” agency. This is due to the theory that debtors will take communications from a separate company more seriously. In reality, in house collectors work for the internal collection departments of large, typically financially based creditors such as credit card companies, mortgage companies, and health care providers.
On the other hand, the majority of collections activity is performed and completed by third party collectors, who are employed by an agency that is separate from the original creditors. Third party debt collection companies are “hired out” and work on behalf of a number of lenders, businesses, and commercial companies. Third party debt collection companies also purchase old debts as their own from original creditors.
Due to the fact that they comprise the overwhelming majority of collection agents, this group of articles will focus mainly on third party collection agencies and their debt collectors. Third party collection agencies are either hired, or work on a contingency basis, where they receive a percentage of the amount that they collect. Individual collectors are typically paid with a lower base salary plus commission.
As I wrote before, some third party collection companies additionally purchase large amounts of written off “bad debts” for a small percentage of the face value. For example, if a debtor owes five hundred dollars, an agency may pay only 1% – 5% of this total. After a debt is sold, the debtor now owes the entire amount to the agency that bought it.
The debt collection company is able to buy the debt for such a small amount because this debt will be very old, and the chances of recovery are substantially reduced with time. Any money that the third party collection agency makes off of the purchase price is their profit.
Mallory Megan works for Rapid Recovery Solution and writes articles on medical collection agencies
