Collection Agencies and Debt Buyers: Should You Use Them?

When a business is owed money, it’s always good practice to collect on that money. But collections can be fraught with problems, which is why many companies turn to collection agencies, or debt buyers, to help them collect. But what are these entities and what do they actually do?

Collecting Business Debt

Certainly, you could collect on your own debt. And for highly specialized debt—for example, collecting on debt owed through a contract between two businesses—this may be a good idea. The businesses may have special relationships with each other, and have mutual knowledge of the background of the debt and the nature of the business that relates to the debt.

Additionally, in many cases, business debt doesn’t carry the legal and public relations risk that private or consumer debt does.

With business debt, it is unlikely that a party frustrated at collections will soil your name online, or spout half truths about you online, just because they’re upset you’re collecting a debt. Furthermore, many laws, like the federal Fair Debt Collection Practices Act (FDCPA), don’t even apply to business debt.

Collect it Yourself?

With consumer debt, you could collect it yourself. But nobody likes debt collectors, and many companies, seeking to preserve their good name and reputation in the public eye, don’t want to do this themselves. Furthermore, they may not be equipped, or have the know how or manpower to collect their own debt.

Using Collection Agencies

Collection agencies can help you collect debt, albeit at a price. When you refer your debt to a collection agency, the collection agency goes to the trouble of contacting the consumer, or reporting the debt to credit reporting agencies. The collection agency, presumably, has knowledge of collection laws that you may not have.

The debt, however, remains yours—you control how much to settle for, or whether to settle, or whether to sue, or whether to just walk away from the whole thing. You also get the money whenever it is paid, minus whatever percentage the collection agency is charging, of course.

Using Debt Buyers

Debt buyers will simply purchase the debt from you, often for pennies on the dollar owed. This may be a good option for companies with significant debt, owed from numerous consumers, where the company just wants to get something for the debt, and walk away from it and move on with life. If there are a lot of debtors, the payment from the debt buyer may be a quick infusion of cash.

But because you are selling the debt to them, whatever the debt buyer collects, is theirs. They also control whether to sue or not sue, or what to settle for, if anything. Your sale of the debt is all you’ll get for the amounts that are owed.

Don’t let debt cripple your business. Let us help. Reach out to the West Palm Beach commercial litigation lawyers at Pike & Lustig for more information.

Source:

investopedia.com/terms/d/debt-buyer.asp