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Collection Services
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Do you ever have one of those days where everything seems to be weighed against you? Your car has an unexpected breakdown, you find out one of your children needs an expensive medical procedure, your work tells you that there's going to be a temporary closure until contracts get signed, and you've already made a non-refundable down payment on a trip that you're now wondering if you can afford? Unfortunately, your bills don't have feelings, and they don't understand the circumstances that are going on in your life--they only want to be paid.
Sure, the bank might be able to help, if you could get an appointment, and if you could afford to wait a week or two to be approved. But you need money today (yesterday if possible), and you still have tasks to be done, errands to be run, and expenses to be paid. So what is an alternative? Well, you've heard of payday loans, financial lending services that are much quicker than the bank in getting you approved, and in a very short period of time can have funds placed into your bank account--just in time to cover the checks you've already written, and the automatic withdrawals you've already made automatically.
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Collection Agencies
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The term collection agency is usually applied to third-party agencies, called such because they were not a party to the original contract. The creditor assigns accounts directly to such an agency on a contingency-fee basis, which usually initially costs nothing to the creditor or merchant, except for the cost of communications. This however is dependent on the individual service level agreement (SLA) that exists between the creditor and the collection agency. The agency will then take a percentage of the debt that is successfully collected; sometimes known in the industry as the "Pot Fee" or potential fee upon successful collection. This does not necessarily have to be upon collection of the full balance and very often this fee is paid by the creditor if they cancel collection efforts before the debt is collected. The collection agency makes money only if money is collected from the debtor (often known as a "No Collection - No Fee" basis). Depending on the type of debt the fee ranges from 10% to 50%(though more typically the fee is 15% to 35%).
Some collection agencies offer a flat fee, typically $10.00, "pre-collection" or "soft collection" service. The service sends a series of increasingly urgent letters, usually ten days apart, instructing debtors to pay the amount owed directly to the creditor or risk a collection action and negative credit report. Depending on the terms of the SLA, these accounts may revert to "hard collection" status at the agency's regular rates if the debtor does not respond. |
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