Consumers in the UK collectively owe in excess of £1 trillion according to recent media reports. Much of this debt is due to borrowing on credit cards, bank loans and mortgages; but as consumer borrowing increases, so does the amount of people encountering financial difficulty in paying back what they owe.
As a result, more and more financial agreements are becoming delinquent and are subsequently passed from the original lender to a debt collection agency. Debt collection agencies are businesses that collect past-due bills and accounts receivable for other persons or businesses in exchange for a fee. Collection agencies charge for their services in one of three ways: a flat fee, a percentage of the amount recouped, or more commonly through a direct purchase of the delinquent account.
Attempts to collect small or medium sized debts are best done using debt collection agencies that charge a flat fee for their services. These agencies are likely to work just as hard at collecting a small debt as they are in trying to collect a larger debt.
The third option is rapidly becoming the most popular among the larger financial institutions as they seek to cut their losses and free up resources away from debt collecting. In most cases, these financial institutions have large portfolios of outstanding debt, and selling it on to debt collection agencies allows them to recoup some of the money loaned out and free up costly resources away from chasing the delinquent debt.
In order to collect due debts most collection agencies will use one of three tactics: letters, telephone calls, litigation. Typically, debt collection agencies will begin the collection process by sending a series of notification letters, often allowing the debtor to enter into negotiations to repay the debt. These letters are often called ‘demand’ letters. The final notification letter that is sent out generally warns the debtor that if no contact is made prior to a certain date then the debtor’s name – whether it be an individual or a company – will be passed onto a more intensive method of debt collection.
In addition to letters, some collection agencies might also phone the debtor directly, again allowing the debtor to work with the agency to agree a plan to repay the debt. Telephoning a debtor at home can sometimes have the best results in collecting a delinquent debt. The third method, litigation, is a last resort and is generally only used when all other attempts to reclaim the debt have failed. Litigation involves taking the debtor to a small-claims court and could eventually result in the debtor being made bankrupt, depending on the amount of debt owed.
Other services provided by debt collection agencies include locating absent debtors who can no longer be reached at the address or telephone number listed on their accounts. Some agencies also offer ‘doorstep’ collection, whereby they employ a number of collectors to visit debtors in their homes to arrange the repayment of debts owed.
Debt purchasing is becoming big business in the UK with many specialist debt collection agencies, such as Capquest Debt Recovery, providing advice on how best to proceed with the recovery of unpaid debt. Should you have a need to employ the services of a debt collection agency make sure that they are members of the Credit Services Association, a regulatory body associated with the debt collection and financial industries.