How Do Collection Agencies Work?

When asked about “what collection agencies do?” most people think of the debt collector that has been trying to contact them about some unresolved debt. What people don’t realize is that there are two, very distinct, business models in the collections industry which go about collecting delinquent accounts in different ways.

WHAT IS A DEBT COLLECTOR?

In short, a debt collector is simply a person trying to collect an outstanding balance. In most cases they work for a third party collection agency, however, they can be from the original creditor as well. The Fair Debt Collection Practices Act (FDCPA) currently only covers third party collection agencies.

WHAT DO COLLECTION AGENCIES DO?

Essentially, collection agencies offer a service to businesses that allow creditors to outsource collections to a third party. When accounts become delinquent (in many cases 60 or more days late) creditors may contract with a collection agency to pursue payment. What’s important to note in this scenario is that the collection agencies do not own the debt. The amount owed by the consumer is still owned and controlled by the original creditor. In this situation, the collection agency works as a middleman between the consumer and the creditor in exchange for a percentage of the amount collected. A large majority of collection agencies operate this way, meaning that they are compensated only when they are able to successfully collect on an account.

How is this different from a debt buyer?

When the original creditor decides they no longer want to own the account they sell the debt. In this scenario, the creditor will put together a “package” of delinquent accounts and sell it to a “debt buyer”. The advantage of purchasing these hard-to-collect debts for the buyer is that they have claim to all the money they can recover and are no longer required to involve the creditor in what settlement to offer. After obtaining ownership of the debt, the debt buyer may try to collect on the account themselves or they might hire a collection agency on commission to complete the work as described above.

By continuing browsing our website, you agree to the use of cookies to personalize our services and provide you with a better experience. For more information about how we use cookies and to manage your cookie settings, please read our Cookie Policy.

By browsing this website, you agree to the use of cookies.

Privacy Settings saved!
Privacy Settings

When you visit any web site, it may store or retrieve information on your browser, mostly in the form of cookies. Control your personal Cookie Services here.

Cookies set by the website visited by the user. The data collected is used for purposes like calculating page views, sessions, and the number of users.


Used to track and measure various website conversions.

Decline all Services
Accept all Services

LET'S STAY CONNECTED!

Sign up for ERC’s WhatsApp Chat and stay in the loop

on all the fun events and excellent job opportunities.

maqueta-whatsapp-telefono-movil-plateado_106244-1521
WhatsApp-Logo-001