AR Legal dispels the myths how a debt collection actually works.
There is no doubt that debt collection agencies have a negative stigma attached to them, mainly due to the many myths that surround the industry and the tactics used.
Below are our top 8 myths dispelled to give you the real truth on how a professional legal debt collection agency can help you get back money owed in a civilised and respectful manner.
Myth #1: Debt collectors have questionable methods
In the past, business owners would resort to all sorts of shady individuals to recover their debts which has undoubtable lead to this misconception about debt collection. The expectation that debt collectors will threaten or will disclose information to other parties or even turn up at your doorstep are very much misinformed.
These days things are different and debt collection is a more respectable and professional industry; abiding by strict codes of conduct and ethical methods. Their activity is regulated by legislation which clearly states how debtors should be treated and contacted, as well as obligations around confidentiality.
Myth #2: You have to go to court
It’s in everyone’s interest to avoid court and a professional debt collector will have many other tools to use before resorting to legal action.
While it’s inevitable that some cases will get to court, it generally only happens in complicated circumstances and is nearly always a last resort. The mission of every professional debt collector is not to get to court, but instead to settle things as quickly and easily as possible.
Myth #3: Debt collecting services are expensive and have hidden fees.
Surely a specialised agency will require a huge fee? Why hire a company to do what I can do myself? What if I end up even more out of pocket?
Perfectly reasonable questions, however in the majority of cases a professional debt collector will only charge their clients after a debt is recovered. Fees are normally on a “no win no fee” basis charged on a commission basis which has already agreed up front. If the debt is not recovered, there is simply nothing to pay.
So, the questions that must be asked are ‘what is the actual cost of the time spent on chasing a debt that could otherwise be spent productively growing the business? And if the debt is not recovered just how much did that wasted time cost?
Paying a debt collection agency is still less expensive than not getting paid at all — after all 100% of nothing is still nothing!
Myth #4: Debt collectors only work with corporations
Because freelancers and start-ups don’t have access to large funds and are reliant on cash flow it’s far riskier for a small company to be stuck with bad debts. In fact, it’s all the more reason and advisable for small business owners to engage a debt collector or to outsource credit control. It will help to keep the cash flowing and can save money in the long run if bills are paid on time.
Myth #5: I should only call a debt collection agency as a last resort
If you’re only considering a contacting a debt collector because things have really got out of hand and the debt already seems impossible to recover, it’s not necessarily too late, however it can be much harder to recover the debt.
You should always have agreed credit terms with your clients and follow up the debt as soon as it becomes due; no longer than 30 days is a generally accepted timescale.
Working with credit agency to manage your day to day credit control will go a long way towards avoiding bad debt in the first place.
Myth #6: I’ll damage my brand and lose customers if I used a debt collection agency
Many businesses are afraid to use debt collection agencies in the expectation that it will negatively impact their business by alienating their clients and damage their brand.
In fact, the opposite is true as working with a debt collection agency is one of the hallmarks of a respectable company that keeps its cash flow in check and cares where its money goes. Most customers understand that if they don’t pay their bills on time that it will go through the collections process so being contacted by a debt collection agency won’t really come as a surprise to them.
A debt collector that conducts its business legally and ethically will do everything they can to ensure a client doesn’t lose its customers by harassment or by an unethical approach.
Instead they will often act as an intermediary, using effective negotiation that will allow you to remain on good terms with your customers and continue a good working relationship.
Myth #7: Recovering debt from an overseas client isn’t possible
Although issues of distance and jurisdiction can make debt recovery more challenging, it is far from impossible. A professional debt collection agency will already have strong networks and partnerships with agencies in other countries.
Myth #8: Solicitors are a better solution for unpaid debt
Solicitors certainly have their place in the debt collection process should it advance to a legal stage, however the advice would always be to engage a professional debt collection agency in the first instance.
It’s rare for costs to be awarded in a claim less that £10,000 even if the case is won so engaging a solicitor at the very start of trying to recover a debt can be very expensive. A good debt collection agency will work in tandem with an experienced commercial litigation specialist, requiring their input only after the opportunity to pursue the debt using Alternative Dispute Resolution methods has been applied first.