Just like businesses (and people!), debt collectors come in different shapes and forms. And like personal relationships, what suits one person isn’t right for another. What types of debt collectors are out there and what are their attributes? Let’s find your perfect debt collector match!
If you are faced with outstanding debts and unpaid invoices from debtors, you have three main debt collection options:
1. Internal debt collection
2. Enlisting a debt collector to work on your behalf
3. Selling the debt to a debt buyer
Let’s take a closer look at each of these.
#1: Internal debt collection. Before calling in for external help, when you notice that an invoice hasn’t been paid on time, the first port of call as a business owner is you – or someone internal within your business. A phone call or email to the debtor is often all it takes to get the money paid to you quickly, or a payment plan worked out. When possible, most debtors are keen to sort things out internally before they start to incur debt collection fees, or their credit score is negatively affected.
Often this is all it takes to get your invoices paid, however, if this approach doesn’t achieve the desired results, it’s a good time to look at options #2 and #3.
#2: Enlisting a debt collector to work on your behalf to collect payment from your debtors. This is what most of us associate with traditional debt collection. Guardian Credit Services is one of these companies. You pay a small upfront fee, which is often refunded to you when the debtor pays. In most cases, the debtor also pays the commission as any fees the debt collector charges you can be passed on to the debtor if it says so in the contract. The fee is passed on at cost, with no additions.
One of the many benefits of outsourcing your debt collection to a reputed, experienced agency is the fact that this is their bread and butter, so they understand the methods it takes to get your debts paid and they’re experts at this. If you’ve spent enough of your time requesting the debtor to pay with no results, weigh up the value of your time – is it better spent working on your business?
#3: Selling your debt to a debt buyer. If the first two options have failed, some businesses decide to sell off the debt to a debt collector. This essentially makes them the new creditor. This is a last resort decision as you’ll receive an extremely low amount for every dollar of the debt. One it has been sold to the debt buyer, it’s up to them to retrieve what they can, and any payments go to them. In financial circles, these types of debts are referred to as zombie debts! If the debt collector buys the debt, they are now the creditor so must follow the Credit Contracts and Consumer Finance Act (CCCFA) and responsible lending code.
Found your perfect match? Many of our clients start with option 1 and if that relationship fails, they move onto option 2, which often has a happy ever after!
