How To Start A Debt Collecting Business – The majority of Americans are in debt. Perhaps that statement doesn’t surprise you, since you are likely part of that majority. There’s a reason I say that, and not because I’m just trying to generalize.
The total debt of anything in the United States is $14.96 trillion. According to Ramsay Solutions, this is an average of $158,209 per household. Mortgage loans make up the majority of debt, followed by student loans, then auto loans, and finally credit card debt. There are other costs as well, but these are the most common.
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Of course, people can manage this by making consistent payments to the organizations they owe money to. For example, homeowners make monthly mortgage payments to their lenders.
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These bills become problematic when borrowers miss payments or stop making them altogether. No one wants to end up in that situation, but the truth is that it’s hard to keep up with too many payments. This results in a quarter of Americans not paying their bills on time.
Enter: debt collectors. If you’re reading this blog, you probably know what these people do. You may even be one of them.
But just in case you stumbled here looking for definitions, let me summarize. Debt collectors do exactly what they do… collect debts. If the borrower does not pay the bill, then the collector buys this past due payment from the business or lender. They then try to collect the person’s debt.
To do this, they send out a debt collection letter. Simply put, it reminds someone that they owe money. The goal is for the person to eventually pay, especially now that the bill is in the hands of a collection agency. After all, no one wants to deal with potential legal action.
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I’m sure you can agree. Even as a debt collector, you don’t want to be dealing with potential lawsuits. But how do you get people to pay before it gets to that point?
Writing an effective but ethical letter is the first step to starting this process. You may be wondering what exactly I mean by “ethical”. It goes beyond writing a polite letter. As a debt collector, there are legal requirements that you need to follow.
If I had to guess, most people don’t miss their payment just because they don’t want to pay. The more likely reason is that they have financial difficulties making it impossible to pay. Since this is a sensitive situation, the government is offering protection to people regarding collection agencies’ efforts to get their hands on their money.
The Fair Debt Collection Practices Act protects individuals from inappropriate and abusive behavior by debt collectors. This law states that collectors cannot …
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There’s a 2009 movie called Confessions of a Shopaholic. The main character, Rebecca Bloomwood, owes thousands of dollars to debt collectors. The collector, Derek Smeath, broke so many of these rules. He abused her by repeatedly calling her personal and work phones, and she showed up at his apartment and work.
In one scene, Bloomwood is a guest on a talk show on live television. He had no idea that Smeath was in the audience. When the talk show host asked the audience questions, he exposed Bloomwood’s debt in front of the entire audience and on live television.
Of course, this movie is a comedy so they didn’t focus on how he broke so many rules that the FDCPA would protect him. But it’s a great example of what a collection agency is
So, now that you know the ethics behind contacting debtors, here are four examples of effective debt collection letters that you can use.
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People may already know they owe money because they will receive an invoice before they go to billing. Although, they may not know the time frame before this transfer occurs.
The time it takes for an account to go to billing varies for lenders, lenders, and even by state. For example, the Georgia foreclosure processing period is only 37 days whereas New York can take up to 445 days. The difference was significant: a little over a month, versus just over a year.
Car loan repossessions usually start within 60 days. In contrast, credit cards usually go through the internal billing department before going to an authorized collection agency.
This is why you need to send an initial letter stating that you are now responsible for collecting payments.
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The example above includes a space for agencies to state who they collect on behalf of. In this way, the debtor knows why they received the letter. By inputting the amount, deadline, and payment instructions, this person knows how to pay off their balance without facing the stated penalties.
It is a requirement that debt collectors send validation letters within five days of first contacting someone. This will most likely include some of the same information as the initial debt collection letter example in the previous section.
However, there are a few more details they need to include in order to qualify as a validation letter. By law, they must declare …
Depending on how you structure the first letter you use to contact someone, you may not need to send out entire separate validation letters. As long as the first includes the details required by law, you’re all set.
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You will most likely send a special letter for this reason if you contact the person on the phone first. Since they don’t have written information yet when you call, you must send it to them within five days.
As I mentioned, the cause of many unpaid debts is financial difficulties. For example, more than 25% of Americans struggle to pay their medical bills. And more than half of those people have no other debt besides these medical bills.
Due to financial challenges, payment plans are a useful way for both the person who owes money and the organization that collects. Because the person has avoided paying their bills for so long, they may still be penniless by the time it reaches collection.
Offering a way for them to make payments in increments helps them reduce debt over time. Of course, it may not be the full amount they owe you. But a little is better than nothing, you’ll eventually receive your full payment, and it’s not as much of a hassle as going to court.
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This plan will also help ease the anxiety of people who have bills around them. 72% of Americans stress about money every month. So if they can split how much they owe at one time, it becomes more manageable.
Sometimes you have no choice but to take legal action. No matter what you try, you can’t get the person to pay.
It’s not like you can keep calling them until they’re so annoyed they end up paying you. After all, that would be against the FDCPA. So what do you do?
You write a letter stating that this is their last chance to pay before you take legal action. This is often referred to as a request letter.
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This should not be considered a threat, because the FDCPA protects people from threats. Instead, state that you’ve tried contacting them, you have no choice but to take legal action, and that they can contact you with a problem or question.
Hopefully, this is enough to get their attention so they’ll settle the bill before you have to go to court. But unfortunately, that’s not always the case. If they deny your claim that they owe you money or they ignore the letter altogether, then you can take legal action by taking the lawsuit to court.
In some situations, the recipient may request that you contact only their attorney. If that happens, then you should comply unless their attorney fails to respond to you within a reasonable time.
Since debt is such a common problem, it’s not impossible that people sometimes struggle to pay their bills on time. It’s one thing to make payments a few days late until the next paycheck goes to the bank.
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But to turn into a month or so is another story. If this happens, the organization to which the person owes money will most likely send the account for collection. That’s where debt collectors get involved.
Since they most likely don’t want to take legal action right away, they try to get money from the debtor. After all, no one wants to have their credit damaged because their account is being billed.
Approaching those in debt is a sensitive situation. There was most likely financial challenges involved, hence why it was taking so long for them to pay out. To protect these people from potentially abusive collection tactics, governments require collectors to adhere to certain practices.
So when these professionals write their letter seeking payment, they need to craft it carefully. By following the tips from this sample debt collection letter, they are sure to employ effective and ethical practices.
Worried Businessman Running Away From His Debt Collector. Business Concept Of Debtor, Financial Problem Or Bad Economy. Vector Cartoon Illustration Stock Vector Image & Art
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