How Third Party Collection Agencies Can Improve Business Debt Collection RatesBad debts can quite literally destroy a company. No business has a bottomless pit of available cash from which it can draw funds to replace those that have not been paid by defaulting debtors. This means that every company must take steps to ensure that all amounts due to them are recovered in a timely manner. To begin with lets deal with any possible confusion caused by the naming of the parties. The First Party to a transaction is the supplier of the goods or services who becomes the creditor. The Second Party is the customer who purchases goods or services from the supplier and becomes the debtor. Finally, the Third Party Collection Agency was never part of the original transaction but they are engaged by the supplier/creditor to chase the debt if it is not paid on time. Hopefully that has clarified the naming of and the relationships between the parties.
Of course, the very best way to avoid bad debts is to operate a cash on delivery service only and some businesses in certain market sectors can operate in this manner very successfully. However, it is accepted business practice for a period of credit to be extended for business to business transactions or for larger business to consumer deals. The credit period will usually be in accordance with the suppliers standard trading terms and conditions and offered for a period of 30, 60 or perhaps even 90 days. Debt recovery becomes necessary when, at the end of the agreed credit period, the debt remains unpaid. Initially a business will pursue the debt but when their efforts fail they may instruct a first party collection agency - which is a debt collection service that is prepared to act in the suppliers name. If the debt remains unpaid the matter will be passed to a third party collection agency for recovery, factoring or securitisation. There are strict regulatory guidelines in place that govern how debt recovery can be attempted and it is important that the supplier or first party businesses employ the services of a reputable third party collection agency, such as West Asset Management, if they do not want to find themselves on the wrong side of the law. There are a number of firms offering low cost third party collection services but their methods of debt recovery must be checked to ensure they remain within what the law permits. Debt recovery can be a time consuming and soul destroying exercise and for these reasons alone it is usually best left to one of the specialist third party collection services. Not only does this free up business resources it does actually, statistically improve the chances of the debt ever being collected. |