How Can I Send Someone to Collections?

When direct efforts to recover outstanding payments fail, individuals and small businesses often engage a collection agency. These specialized firms pursue unpaid debts on behalf of creditors, offering a structured approach when internal collection attempts have been exhausted. This article outlines the essential steps for preparing and sending a debt to a collection agency.

Assessing Debt Collectibility

Before engaging a collection agency, evaluate if a debt is a viable candidate for external collection. The age of a debt significantly impacts its collectibility, as agencies typically prefer accounts that are 90 to 180 days past due, though some may consider older debts. The legal enforceability of a debt is also a factor, as debts generally must fall within the relevant statute of limitations. Agencies usually have minimum thresholds for debt amounts, as smaller sums may not be cost-effective to pursue.

The existence of clear, undisputed documentation is paramount for a debt to be collectible. This includes invoices, contracts, and any written agreements that establish the obligation. Prior efforts made by the creditor to collect the debt directly, such as sending demand letters, making phone calls, or attempting to arrange payment plans, also demonstrate the debt’s validity and the creditor’s diligence. Agencies prefer accounts where the creditor has already attempted good-faith collection efforts.

Preparing Debt Information

Submitting a debt for collection requires specific information and supporting documents about both the debtor and the debt. Accurate debtor details are crucial, including their full legal name, current and any known previous addresses, phone numbers, and email addresses. For business debtors, the Tax Identification Number (TIN) is important, while for individuals, a Social Security Number (SSN), if legally obtained, aids in identification.

Detailed information about the original debt is necessary, such as the date the debt was incurred, the original amount, and the current outstanding balance. An itemized breakdown of all charges, interest accrued, and any applicable fees provides transparency and substantiates the claim. A complete payment history, noting dates and amounts of any payments made, helps to clarify the remaining balance.

Supporting documentation forms the foundation of the collection agency’s efforts. This includes copies of all invoices, signed contracts, service agreements, and purchase orders. Any correspondence related to the debt, such as emails, letters, or detailed records of phone calls, can provide valuable context. Proof of goods or services delivered, like delivery receipts or completion certificates, verifies the transaction. Documentation of any payment plans, dishonored checks, or failed payment attempts further strengthens the case.

Choosing a Collection Agency

Selecting an appropriate collection agency requires careful consideration for effective and compliant debt recovery. Most agencies operate on a contingency fee basis, meaning they receive a percentage of the amount successfully collected, typically ranging from 25% to 50% depending on the debt’s age and complexity. Some agencies may offer flat fees for specific services.

An agency’s adherence to regulatory requirements is critical, including compliance with the Fair Debt Collection Practices Act (FDCPA). State licensing requirements also vary, and ensuring an agency is properly licensed in its operating states protects both the debtor and the creditor from illegal collection practices. Researching an agency’s reputation and reviewing client testimonials can provide insights into their track record.

Agencies often specialize in certain types of debt, such as consumer or commercial accounts, and may employ different collection approaches. Understanding the agency’s communication protocols is important; this includes how they will provide updates on collection progress. Data security practices are also paramount, as agencies handle sensitive debtor information. Contacting multiple agencies, requesting detailed proposals, and clarifying all terms before engagement allows for an informed decision.

Initiating Collection and Ongoing Process

Once a collection agency has been selected, the formal process of initiating collection begins with signing a comprehensive agreement. This contract outlines the terms of service, including the agreed-upon fee structure, the duration of the collection engagement, and the responsibilities of both parties. The creditor submits all the meticulously prepared debt information and documentation to the agency. Agencies typically provide secure methods for this submission.

Upon receiving the debt information, the agency conducts an initial review to verify its accuracy and completeness before assigning it to a collector. The agency then begins its collection efforts, which typically involve communications with the debtor, such as phone calls, demand letters, and sometimes credit reporting, adhering strictly to regulatory guidelines. The creditor’s role during this period involves staying informed through regular updates from the agency and providing any additional documentation if the debtor disputes the debt.

When payments are successfully collected, the agency remits the funds to the creditor, typically subtracting their agreed-upon contingency fee. If the debtor directly contacts the creditor regarding the debt after it has been placed with an agency, the creditor should promptly refer them back to the collection agency. A collection account may be closed if the debt is fully collected, deemed uncollectible after exhaustive efforts, or if the creditor requests its return.