Debt Collection - What is it?

Debt collection is the final option a company must take against a client that is unable to pay back money lent. Debt collection is normally assigned to the department within a company who detects when a payment to the company falls into arrears (this will usually be one month). Once detected, it is the job of the people within the debt collection department to collect the money owed.

Debt Collection - Main Steps

Debt collection by the lending company takes place in a number of different steps:

• Debt collection department detects an account falling into arrears
• The department makes contact with the client to inform them of the situation
• The debt collection team will discuss a payment plan with the client, and the account is set back to a normal status
• If no payment is made, and the account falls heavily into arrears, the debt collections team will take action against the client and send bailiffs out.

Although the debt collections department is assigned to collect the money, they will usually take into account any circumstances that may have caused the account to fall into arrears. To establish the clients' circumstances, the debt collection team would check: changes since the account was set up; income; expenses etc

Once the client pays or has made an agreement with the debt collections team on payment on the owing amount, then their account is changed back to a normal status. If however the client ignores this, the unpaid amount will stay in arrears on the account. The debt collection agents will contact and explain to the client how this will affect their credit rating and the implications of this. The debt collection agents will also keep a check on the account until the amount owing is paid.

If another payment falls into arrears, the client will be contacted again and establish a reason why the payments haven't been made. The debt collection agents will at this stage record the unpaid amount onto the account and the client's credit rating.

If payment is still not made, then the account is passed onto a higher debt collection team who will keep in constant contact with the client so as to update the account regularly.

If the client pays the arrears off, either in one full payment or by increased monthly payments, the account will then return from debt collection to normal standards. However, if the customer still fails to pay and the arrears increase, this is then sent to the debt collectors who will take action against the client and send bailiffs to make up for the debt.

Action from debt collection to the client is the last resort and if it can be avoided, it will be.

It is essential for the client to pay as it is effectively stealing from the bank or lending company. Debt collection is only enforced so that clients find a quicker solution to their finances.

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