In the perfect business model, you provide your customer with a service or product
and they pay you in a timely fashion. However, if you have a company, you know that delinquent
customer payments are a prevalent and often unavoidable aspect of business transactions.
In order to remedy the problem of delinquent payments, certain companies have
departments specifically tasked with debt collection. These departments are often referred to as “
first party agencies” because of their association with the first part of the contract, the
merchant. These departments handle communication with delinquent accounts and employ multiple
tactics in pursuit of the funds, including phone calls, letters, and emails. Companies that handle
debt collection internally are required to dedicate a significant amount of resources to resolving
delinquent accounts, as debt collection tends to be a tedious process.
For many companies, the investment of time, money, and manpower are often too
consuming to handle debt collection independently. Due to this, many businesses turn to external
collection agencies, or “third party agencies”, which specialize in pursuing payments for overdue
accounts. Collection agencies are referred to as third party agencies since they are not a part of
the original contract between the merchant and the customer. According to the international
accounting firm of PricewaterhouseCoopers, “third party debt collectors returned $39.3 billion to
the US economy in 2005.” That is a tremendous amount of money that collection agencies have managed
to return to businesses in 2005 alone.
Certainly the companies that hired collection agencies benefited from their
decision. The use of collection agencies returned capital to these companies, but it also
allowed them to focus their resources on their core business, whether that was providing services
or products. For the businesses that relied on successful collection agencies, their benefits are
clearly multifaceted.
Additonally, these companies aren’t the only group to have reaped the rewards from
the efforts of debt collectors. The economy in general is a direct benefactor of the financial
recovery efforts of collection agencies. The $39.3 billion returned to the business place in 2005
helped keep the prices of consumer financial transactions from being raised to support the loss in
debt. Moreover, according to PricewaterhouseCoopers independent research titled “
Value of Third–Party Debt Collection to the
U.S.
Economy: Survey and Analysis,” the recovery efforts saved the average American household
$351 in 2005.
The decision to outsource debt collection to a collection agency needs to be given
proper consideration, and once the decision is made, the search for the proper collection agency
needs to be done as well. It is clear though, based on the facts above, that for those who decide
to use such a resource, the debt collection industry has been providing results.
