Understanding How Debt Collection Services Operate in the USA
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Understanding How Debt Collection Services Operate in the USA

This article describes how debt collection services operate in the USA; how they collect the actual debt owed, their fee structure and lastly how they operate within the laid down guidelines and principles issued by the Financial Conduct Authority.

For a successful business to maintain steady cash-flow, maximum revenue and optimal profit margins, it needs to have solid credit management and debt collection policies and procedures. Late, missed or unmade payments can seriously impact a company's financial stability and credit rating. For companies who have customers not paying their invoices or delaying payments and incurring debt, there are debt collection agencies who will work on their behalf to ensure payments are made.

Depending on the industry in which you operate in and the size of your business, namely whether you are a sole trader or limited company, a debt collection company will employ a range of techniques to realize funds. These techniques will include more gentle measures to recover monies owed from late payments, for example telephone calls, reminder statements, emails and specific ‘collection' letters that request payment. If these attempts fail to elicit payment, letters sent become less gentle, culminating with a ‘Letter before Action,' if you wish to pursue the matter through legal channels via Court. Before this stage is reached however, it is wise to instigate formal credit management policies which will reduce the risk of late payments and subsequent company cash-flow problems. Such policies involve thorough credit checks of customers, adherence to credit lines and effective invoice management to ensure prompt payment once any transactions have been completed.

In the United Kingdom, the Financial Conduct Authority, FCA, publishes guidelines and principles for how debt collection agencies can operate and retrieve funds. When assessing debt collection services in the USA, it is wise to examine their compliance with these guidelines. Although not enshrined in law, they offer fair guidelines for debt collection and aim to minimize unfair practices; for example false assertions claiming to be acting in an official and legal capacity as a court-appointed bailiff, harassment or insisting on excessive payments. For debt collection services in the USA, working within the boundaries of these guidelines is required to ensure the agency is worthy of acquiring a license for debt collection, retrieval and management.

Debt collection services in the USA work in one of two ways: the original company sells the debt to a collection service partly because they no longer wish to deal with your account. The debt is sold for less than the amount actually owed and then the debt collection service retrieve the full amount back from the debtor. The difference is the profit for the debt collector.

Alternatively, the debt is still owed to the original creditor but the debt collection service retrieves the money and keeps an agreed percentage of the money collected. Whichever approach is taken, the services offered by debt collection specialists provide a more efficient way for a company to alleviate bad debt, retrieve funds and operate effective credit management policies. They are a normal part of the debt collection process, and operating within the guidelines issued by the Financial Conduct Authority, a more cost-effective way to manage company debt, cash-flows and ultimately profit and revenue.