How Successful Are Debt Collection Agencies?
Recovering outstanding debts can be a challenge, even more so since the pandemic and, while many business owners feel uncomfortable chasing their customers for amounts overdue, unpaid balances can severely restrict the growth of any business.
If a customer owes you money, a fully-accredited debt collection agency could help you resolve the situation and receive swift payment without resorting to legal action and county court judgments (CCJ). But are they as successful as they claim? In this guide to UK Debt Collection Agencies, we’ll cover everything you need to know.
What Are Debt Collection Agencies?
As the name suggests, debt collection agencies (also known as debt recovery agencies) specialise in collecting outstanding or overdue debts on behalf of you, the creditor. There are many different agencies in the UK; some collect only smaller debts, while others only certain types of debt, so it is essential to find the right one for the arrears you are trying to collect.
While debt collectors and bailiffs both provide the service of collecting outstanding debts, they are not the same, and it is important to understand the differences between the two. Debt collection agencies are private companies that act on behalf of creditors, a middleman if you like. Bailiffs are enforcement agents who either work for the court or are appointed by the court to collect overdue debts.
How Do Debt Collection Agencies Work?
Debt collection agencies generally offer two services. They will collect the debt on your behalf and charge you a fixed fee for their services, or they will purchase the debt from you at a reduced rate and request the total amount from the debtor.
If you go for the first option, you will still legally own the debt and, your collector will act as the middleman. If you decide to sell the outstanding amount to the debt collection agency, they become the legal owner of the debt, so this is something to keep in mind.
Unlike bailiffs, debt collectors do not generally visit business premises or homes but rely on phone calls and Letter Before Action (LBA) letters to make customers pay. That said, debt collectors can enter homes if invited to do so, but unlike bailiffs, they cannot force entry and must leave a property if asked to do so.
Taking this ‘softer’ approach can be particularly beneficial if you would like to retain a professional business relationship with the person or company that owes you money and could help your business avoid future problems. A registered debt collector will recover outstanding debts in a friendly yet assertive manner, ensuring you get your money without resorting to court action.
How Much Do Debt Collection Agencies Cost?
If you hire a debt collector in the UK, they will either charge you a fixed fee (usually on smaller amounts of under £500) or a percentage of the total amount collected. But it depends on what they need to do to recover the debt. There are four main stages in the collection process:
1. Sending Out An LBA
The first stage in debt recovery is usually sending out a Letter Before Action. This is a formal letter sent out by the debt collection agency on your behalf, informing the recipient that, if they do not settle within a specified period (usually seven days from the date of issue), you will take further action.
2. Issue A County Court Claim
If the LBA does not remedy the situation, your debt collection agency will proceed to the next stage and issue County Court proceedings. This is a formal legal process whereby the debtor receives a letter from the court requesting that they settle the debt (plus interest and costs) within 14-days of receipt.
3. Issue a County Court Judgement (CCJ)
If the debt remains unsettled, the next step it to ask the court to issue a County Court Judgement (CCJ), which allows the debt collection agency to take enforcement action. It also puts a mark on the debtor’s credit record. CCJs can seriously affect credit score ratings - so most claims are settled before it gets this far.
Enforcement is the final stage in debt collection. Your debt collection agency will provide you with further instructions on enforcing the CCJ and collecting all monies owed.
The more steps a debt collection agency makes to recover the outstanding debt, the more it will charge. However, many work on a no-collection-no-fee basis or offer their services free of charge to the creditor – adding their costs to the debtor's balance.
How Successful Are UK Debt Collection Agencies?
So, how successful are debt collection agencies in the UK? Very successful indeed! More than 85 per cent of cases are settled within seven days of sending the Letter Before Action, so you can avoid the hassle of going to court and get the results you need.
If you are having trouble recovering outstanding debt, why not source a debt collection agency today. You could have the funds in your account in less than 10-days without spending a penny.