Debt collection is one of the most important and trickiest processes that impact the cash flow of a business. When not done properly, debt collection can have financial repercussions and reputational damage. With a process this important and intricate, mistakes can easily happen. In this article, we will explain what debt collection is and also outline 10 common mistakes to avoid during debt collection.
What is Debt Collection?
Debt collection is the process of recovering money owed by a borrower to a lender or creditor. This occurs when a payment on a loan, credit card, service, or bill isn’t made after a certain grace period, typically around 60 days past due. A creditor, either a business or a person, to whom the money is owed, and a debtor, a person or an entity who owes the money, are involved in the process. The collection stages can include early attempts, escalation, credit reporting, legal action etc.
10 Common Mistakes to Avoid During Debt Collection
Skipping Verification
Debt collectors must verify the debt upon request. This includes providing written proof of the debt, such as the original creditor, the amount owed, and a breakdown of charges.
Neglecting to Understand the Debtor’s Circumstances
Not taking the time to understand why payments are late can prevent finding mutually agreeable solutions, such as realistic repayment plans.
Failing to Maintain Accurate Records
Without detailed documentation of communications and collection attempts, defending any disputes or legal actions can be challenging.
Ignoring Legal Requirements
Unfamiliarity with laws such as the Fair Debt Collection Practices Act (FDCPA) can lead to legal repercussions, including fines and lawsuits.
Lacking Flexibility in Payment Arrangements
A rigid approach to debt collection can discourage debtors from committing to payment plans, reducing the likelihood of debt recovery.
Inconsistent Collection Efforts
Not developing a consistent communication and follow-up strategy can decrease the effectiveness of your collection efforts.
Using Aggressive Collection Tactics
Overly harsh or unprofessional methods can damage your reputation, cause legal challenges and discourage debtors from wanting to pay their debt.
Making Misleading Statements
Providing inaccurate information about debts, interest rates, or legal consequences can breach trust and violate ethical standards.
Lacking a Clear Communication Strategy
Not having a predefined plan for contacting debtors can lead to unprofessional interactions and inefficiencies in your credit collections process.
Contacting Inappropriate Parties
Reaching out to anyone other than the debtor about their debts is against the law and can invade privacy and lead to ethical and legal issues.
Avoiding these common mistakes can enhance your debt collection processes, maintain your company’s reputation, and ensure compliance with relevant laws.
Work With First Credit Services for Your Debt Collection Needs
First Credit Services is a BPO company that has been providing compliant credit collection services for over 30 years. They have built winning strategies to increase collection rates in the medical, consumer, and auto loan industries, as well as bank cards, memberships, and leases.
Early Intervention and Late-Stage Collections
First Credit Services offers both proactive first-party early intervention services and third-party collection services. Their early intervention strategies help prevent delinquencies from escalating, while their expert third-party collections ensure effective recovery of more challenging debts. Partnering with them can significantly enhance your debt recovery process.
Legal Compliance
We, at First Credit Services, focus on security and debt collection compliance over everything. Our compliance management team has put in place documented CFPB and FDCPA compliance policies and procedures that ensure data and records are handled properly within federal guidelines.
Omnichannel Customer Engagement
We offer a fully compliant and flexible omnichannel digital engagement system that involves SMS, email, chatbot, and human connections which allows customers to have the autonomy of deciding how they wish to communicate with us and take care of their bills, allowing for a personalized experience.
Contact First Credit Services today for expert debt collection services!
