Collection agency – What is it, definition and concept

The collection agency is an institution specialized in collecting a debt. Its services can be contracted, for example, by banks or credit institutions.

That is, collection agencies are companies dedicated to collecting debts. This, commissioned by the creditor himself.

A financial institution has a client portfolio within which defaulters can be identified, that is, debtors who have not fulfilled their obligation to return the financing received.

Thus, the lender may have, within its company, a collection team. However, after several unsuccessful attempts to collect the debt, you can choose to hire the services of a collection agency.

In summary, we are facing the outsourcing of debt collection management.

The idea is for the agency to contact the defaulter and negotiate with him to reach an agreement. This, of course, always in accordance with the country’s legal framework.

Actions that the collection agency can take

The actions that the collection agency can take are mainly the following:

  • Communicate by telephone with the debtor.
  • Send notifications by mail.
  • Negotiate with the debtor to recover the debt or part of it.

Actions that cannot be carried out by the collection agency

However, there are actions that the collection agency cannot take:

  • Threatening the debtor with measures such as arrest or liens.
  • Engaging in practices considered hostile, such as talking to third parties about the debts of the defaulter (with their employers or neighbors, for example). Confidentiality must be respected.
  • Using documents pretending that they are official documents, for example, from a court.
  • You cannot disrespect the debtor by using obscene or vulgar language.
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Collection agency process

Another issue to keep in mind is that the law usually contemplates a procedure by which the collection agency acts. For example, it is usually established as a first step the notification to the defaulter about the existence of the debt, including all the data corresponding to it, such as the amount and the concept.

Thus, a period is provided, perhaps 30 days, so that the debtor can question the information received, in whole or in part. If there is no answer, it will be assumed that the data is correct.

This means that the debtor has the opportunity to dispute the debt, and the agency must respect that right. Likewise, the debtor may ask the agency not to communicate with him at his office or work, or to refer all communications to his lawyer. These requirements must usually be respected although, as we have already mentioned, it always depends on the legal framework of each country.

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