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When you need a collection agency

It’s a real drain on a business when you can’t get clients to pay.

It’s ideal when you can take matters into your own hands and see results, but when you’ve tried everything else, sometimes you need to hire a collection agency.

A collection agency is helpful if you haven’t been able to successfully contact the debtor on your own, if several debts have been difficult to collect or if a debt is too big to collect in small claims court.

Typically, collection agencies require businesses to turn over each debtor’s name and information, then try to collect the debt. If it is successful, an agency pays the money to the business, minus a fee, which usually ranges from 25 to 45 percent.

In some cases, a collection agency will negotiate with the client to obtain some amount of payment, even if it is not the total amount owed.

Next steps if the agency fails to collect

If the agency doesn’t collect, you can always try again to collect a debt yourself, because you still own it.

If neither you nor the agency can locate the debtor, you might have to let it go.

If you have located the debtor, but still haven’t collected, one option is to sue in small claims court, but be aware that it’s tough to win.

You can also hire an attorney to collect a specific debt.

Collection rules

It’s important to remember that debt collectors are subject to the rules of the federal Fair Debt Collection Practices Act.

According to the Consumer Financial Protection Bureau, if clients are individuals, debt collectors may not: harass or abuse them, conceal the collector’s identity, lie or employ unfair practices, call before eight a.m. or after nine p.m., call at work or fail to comply with a written request to stop contacting the debtor.

If clients are businesses, there are fewer specific limitations on what debt collectors can do to collect debts, though they are similarly barred from illegal practices such as fraud and threats.

Tips for finding, choosing an agency

Find a reputable agency in your area through word of mouth, or do an online search. Before engaging, interview the agency to ensure a good fit with your business and to check for strong ethics.

Read online reviews, check the Better Business Bureau and view the agency’s rating by Consumer Affairs. If you want to research further, you can contact the attorney general in your state to see if any lawsuits have been filed against them. You can also contact the Consumer Financial Protection Bureau to see if any complaints have been filed against them.

Ask for details on the script they use when contacting a debtor, and for information on how they contact and track debtors.

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