The debt collection industry has become more and more competitive as delinquent debt totals rise and the economy continues to suffer. Commercial collection agencies are in demand as a resolution to lost income based on unpaid bills and uncollected debts. As such, these agencies have profited greatly from their endeavors and insight into the industry.

There are a number of reasons that commercial collection agencies enjoy greater success in debt collection than internal accounting departments and private debt collection attempts.

Commercial collection agencies are well versed in the industry, with greater knowledge and experience than businesses. Typically, a business owner will train employees in daily accounts payable and receivable procedures but not in debt collection functionality. This leads to a lack of focus on recovering delinquent debt.

By comparison, commercial collection agencies focus on nothing but training for the debt recovery process. There is no time dedicated to other procedures, and rigorous training is undergone by all parties within the company.

In addition, resources become a hindrance for internal collections departments, whereas commercial collection agencies have practically unlimited resources. There is never a need to borrow manpower from another department to chase down payment on delinquent accounts, as this is the sole focus of the business. And all funding is put into debt collection procedures.

Commercial collection agencies are also more successful because they don’t have to cultivate trusting, friendly relationships with their clients in order to retain business and income. Unfortunately, businesses rely on customers to fund their companies, and often, the need to keep a good reputation trumps the need to collect delinquent debt.

The commercial collection agencies need not worry about gaining favor from debtors and may, by contrast, be much more aggressive in their debt collection pursuit. If the agency is ever tasked with contacting the same individual again, it is simply because that individual missed the opportunity to pay another account on time.

In the debt collection industry, commercial collection agencies have the benefit of superior knowledge, resources, and experience in the industry. They are unique among businesses. At the same time, other businesses wishing to pursue debt collection internally could take a few pages from their playbooks and achieve greater success.

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Recovering delinquent debt drains resources, and the recovery process often fails. With the time, money and manpower spent on debt collection, many businesses find it more appealing to hand off delinquent accounts to a debt collection agency rather than face the negative impact on the company.

Of course, taking steps to increase success with in-house debt collection can be a rewarding endeavor. With skill and determination to succeed, businesses can achieve great results in pursuing delinquent debt on their own.

Starting the debt collection process prior to delinquency is a trick that can save everyone a great deal of hassle. Calling the client to remind them of the payment due date in advance avoids a great many missed or late payments, significantly decreasing the amount of time and money spent in debt recovery.

Contact the debtor as soon as possible once the payment is delinquent, preferably within the first ten days. Waiting thirty days allows the process to fall behind. Debt collection is most successful when approached swiftly. Call the client to remind them of the late payment, assuring them they will also receive a reminder, and send a letter immediately.

Courtesy at the beginning of the debt collection process can go a long way. However, if this doesn’t work in the short term, it certainly won’t work in the long term. The longer it’s been the more adamant the debt collector should be insisting the debt is recovered immediately. A definitive consequence of nonpayment can eliminate the possibility of the debtor ignoring the calls.

Seeking out smaller debts first is more lucrative in several ways, not the least of which is a better chance of fast recovery. Concentrating on the smaller sums means contacting clients who can more likely make the delinquent payment immediately, which gets working capital to the business and allows the pursuit of greater debt sums.

Cut off credit lines. For those in the debt collection process, it is necessary to restrict purchases to advanced payment options, meaning they are no longer extended credit by the company. Extending credit to clients with delinquent payments does not motivate them to pay the outstanding sum, nor does it drive home the insistence that all bills be paid on time in the future. If a debtor is unable to purchase needed supplies or services, they are more likely to find a way to pay the amount due.

A great deal of time and money can be saved in debt collection by working smarter and using a little common sense. By following a few simple rules, businesses can increase the amount of delinquent debt they recover while saving on the cost of doing so. Resolve and hard work can boost in-house debt collection significantly with the right attitude.

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Investing in older debt is a much better business initiative than trying to purchase fresh paper charge-offs. These newer accounts are not only more expensive but also harder to grab unless you have an inside track to the original issuer of debt. It is also rarely sold in small increments.

The economy is weak, and banks will do what they must to recover the most delinquent debt possible. Often they are willing to offer very low settlements to collect greater amounts than offered through charge-offs. When a bank cannot collect $0.15 on the dollar for a debt, how can someone buying bad debt expect the client to be able to repay the debt immediately upon acquisition? It’s not good for business.

Once that debt has been through one or multiple agencies, there is a much greater chance of recovery. Banks have strict regulations for collection during the initial months of delinquency, and these must be adhered to by the preferred collection agencies. This is an attempt to preserve their reputation while collecting their debt.

For the first three to six months, the account must be collected for 75% of the balance, and somewhere around 60% after than, unless the collection agent receives proper approval from the issuer. At this point, the accounts have been worked softly to avoid harassing the customer. Also, these collectors are working for low fees and will concentrate on the more lucrative accounts first.

Buying bad debt with lower balances is a great way to profit. In the tough, weak market today, studies show that balances between $1000-1500 are more successfully collected than those of $5000 or more.

Within these smaller accounts are payday loans, which also prove profitable for firms buying bad debt. These collect well when totaling $700-800. Like these, many low balance accounts can be acquired from non-prime lenders. They can also be obtained from brokers, but you will pay a premium here because the broker must first pull them from larger portfolios.

When buying bad debt from a broker, the fewer hands on a file, the better chance you will have of collection success. Working with brokers means negotiation and getting to know that particular broker, since not all brokerage firms handle things the same way. Be aware of fees charged, and realize that, in such a tight industry, brokers are likely to all know each other.

Like most industries, supply and demand drive the market in buying bad debt. More purchasers drive up the cost of the debt. Be familiar with the competition and the state of the market so you are ready to determined the profits you can expect from buying bad debt.

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