Collection Agencies: 5 Biggest Misconceptions

Posted by Marilyn Miller on April 29, 2021  /   Posted in Uncategorized

Collection agencies get a bad rap. Some of the criticism is deserved. The very idea of receiving a collection call is upsetting. Some collection agencies have been poor actors. If you are a business, you hate the idea of hiring a collection agency.

However, some of the criticism comes from common misconceptions. Let’s take a look at the most common misconceptions:

Number One: Collection agencies are allowed to run rampant and have no accountability.

While requirements vary by state, many states require consumer collection agencies to be licensed and bonded. They are audited annually and held to strict professional standards. On a federal level, the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission offer guidance and provide an avenue for consumer disputes.

Collection agencies are also subject to civil penalties if they violate the provisions of the Fair Debt Collection Practices Act, or FDCPA. The FDCPA, a federal law that limits the actions of third party consumer debt collectors.

Like any industry, there are good companies and bad ones. However, most collection agencies are realizing that they key to staying in business is treating debtors with respect. Working with people and putting together payment plans that benefit all parties is the way to go.

Number Two: Collection agencies exist to ruin the credit of people in debt.

While many collection agencies use credit reporting as means to secure payment of a debt, it is only one tool, they are required by law to do so carefully. Debts are usually not reporting until a concerted effort is made to reach the consumer for payment. The reporting of one single debt has limited impact, and only the reporting of multiple debts will actually “ruin” credit. Good collection agencies focus more on recovery for their clients, because that is how they get paid.

Number Three: Referring a non-paying customer to collections will hurt your business.

Will customers be upset when they are referred to a collection agency? Sure. Will they refuse to do business with you again? Perhaps. My question would be, “Do you want to do business with someone who will not pay you?” Some business owners and physicians believe they will get sued by customers referred to collections. I have never seen this happen and I have been doing this work for nearly 20 years. Of course, if you know of a situation that could give rise to a cause of action against you, you should think twice about referring that file.

These days, online reputation is everything. Some small business owners are concerned that customers in collections will slam them online. If someone who owes money wants to share with the world that they have not paid for services (again, I have never seen this happen), don’t you think their comment will be seen for what it is?

A dentist client once told me that he was worried that he would get a reputation as, “the dentist who sends his patients to collections”. He was owed $100,00 and was having trouble meeting his expenses. I replied that he had the reputation as the dentist who nobody ever pays. We wound up collecting thousands for him, and not one patient ever complained.

Number Four: Collection Agencies Cost Too Much

Most collection agencies work on a contingency basis, which means they take a percentage of what they recover. They do not get paid until they get you paid. If you are at the point of hiring a collection agency, you are aware that you have nothing.

Imagine a business that provides a cost for service to you before knowing what it will cost them to provide that service? That is exactly what a collection agency does. When they accept a file, they do not know if they will collect in a week or a year, but still quote you the rate to collect the debt.

If your collection agency fails to collect, you do not owe them anything. How is that expensive?

Number Five: Collection Agencies do not do Anything I Cannot Do Myself

Collection agencies only collect money. They focus on it. Do you have time to focus solely on chasing non-paying customers? Collections agencies have specialized tools to research and find people. They have the experience to determine the ability of people to pay, and the skills to negotiate a settlement on your behalf.

If you have an issue with customers not paying you, but are not sure a collection agency is right for you, pick up the phone and speak to a few agencies. Call some business owners you know and talk to them about their experiences. I think you will be pleasantly surprised.

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