In the movies, debt collectors are thuggish, scary-looking individuals who hound consumers and threaten them with shame and physical harm. In the real world, unless of course, you borrowed from the mob, your debt collector is more likely to be a polite, well-dressed professional who will talk to you nicely with a sprinkling of legalese.
As a debt collector, the first thing you should do when you contact a debtor is to tell them what their rights are. Let them know that they can legally challenge their debt so that they don’t feel bullied or trapped. Then inform, clearly, of how much they owe, who they owe it to, and when the debt is due. You can then offer them a chance to negotiate payment terms whether it’s to refinance their student loans, make smaller payments on a loan, etc.
Phone first, email second
This first contact should be done on the phone and backed up by email. If you’re talking on the phone, let them know the call is being recorded, for verification purposes. Choose your tone and language carefully so that you don’t spook them. This is important because that first contact can be the basis for further action if the client misses the payment deadline.
Dates matter for two reasons. One, as a debt collector, you are restricted to the number of times you can get in touch with a debtor. You’re allowed to call or email them a maximum of ten times a month. Your timing is under tight restriction as well, so keep a close eye on the clock and a keen record of times and dates of contact. It’s 7.30 a.m. to 9.00 p.m. on work days, with a later start of 9.00 p.m. on weekends. Don’t call or email on national holidays.
The initial contact will request payment within 30 days. This period is outside of the payment period agreed between the debtor and their creditor, because by the time a company calls in a debt collector, then the payment is officially overdue.
The main work of a debt collector or in the modern world isn’t to break limbs or intimidate customers. It’s to calmly and reasonably re-negotiate payment terms. This might include developing instalment plans, re-assessing payment dates, or working with the debtor’s accountant or lawyer to figure out the best way to pay.
Debt validity period is a challenge
Unfortunately for creditors, there are legal statutes on how long a debt is valid. If the debt stretches past a certain period, it can no longer be legally collected and the creditor must forfeit their money. Some creditors sell their debt when this period approaches, but resold debt is even harder to collect than first-party debt, and is more open to unscrupulous practice. As a responsible debt collector, it’s ill advised to get into that territory.
In most cases, a debt collector can’t pursue a debt that is more than six years old. This period is calculated from the date of the last payment, or from the date when the debt was officially declared to the consumer. That’s why records are so important.
Another statute for debt stretches up to 15 years, but this only applies once court procedures have begun. In mortgage cases, a statute of 15 years applies as well, since a mortgage is a specified long term debt arrangement.
In debt collection, time is money
Clearing debt quickly isn’t just a matter of legality and peace of mind. The reason people get into unmanageable debt in the first place is interest rates. And unfortunately, interest doesn’t stop accumulating. The longer your debtor negotiates, the higher the interest piles up, and the more money the owe. Naturally, the more they owe, the harder it is to repay.
Even if your debtor as committed to a repayment plan and is abiding by it, they could soon exceed the payment statute, at which point you can no longer collect the debt legally. An even less pleasant possibility is bankruptcy.
While you are collecting your debt, the consumer is going on with their daily life, paying bills, running a business, raising children, and probably accumulating more debt. If they end up filing for bankruptcy, you’ll never recover your money, and you’re not even allowed to try.
Collecting business debts
In more practical terms, debt collectors are often called in at the business level. Cash flow is a key part of successful business and bad debts interfere with that. If the repayment period is stretched too thin, then instalments will be too small to make a significant impact on the business cash flow. It will only be income on paper but will have no real-time benefit.
In such cases, while recovering the debt will clean the business books, it will not really help the creditor to pay its own debts, or function at a profit, which is the whole point of business. To avoid all these unpleasant consequences, recover debts as soon as possible. Work out a plan that doesn’t necessarily strain either the debtor or the creditor.