This scenario happens every day: you sell your products and services to a new or recurring client. For some reason, they are unable to pay you. For small companies, this can be a disastrous situation where cash flow becomes extremely tight and can sometimes put your company in a very risky situation.
The riskiest payment option is to give credit to your international clients as they can have various reasons for not paying you after receiving your products. Things can also go wrong with letters of credits or other documentary collection. In this situation, you will be faced with the possibility of pursuing your clients by other means than emails and phone conversation. This is when international debt collection companies come into the picture.
A debt collector usually works by commission which presents no risks for you. They will not bill you until they have recovered some of your money. To clarify, if they are unable to get any money back, they will not charge you anything. This is basically a win-win situation for both parties. Debt collection agencies employ experienced specialists and lawyers in this particular field to increase the odds of getting your money back. Some of these agencies may charge high commission rates.
A debt collection agency can only sue you if your debt is with them, not a third party creditor. Some debt collection companies buy bad debts for a fraction of their value and make their money by trying to recover the full amount of the debt. If the company you originally owed money to sold the debt to such a collection agency, then that agency could indeed sue you to recover that debt, because the debt now legally belongs to them.
There are costs involved in legal action and the process can be slow, so if the debt is relatively small, or if they think you really haven’t got the money to pay, they may decide to cut their losses. Bear in mind that only a small proportion of debts end up being settled through the court, and that even if the court finds in their favor, there is still no guarantee they will get the money.
In Era of Financial Crisis, more and more creditors have turned to International debt collection outside the court system. The collapse of global economies from around mid 2008 and through into 2009, leading to recessions in many countries, has seen tremendous and hereto unheard of efforts by governments around the world to stimulate consumer and commercial confidence
There are different types of collection agencies. This would include first party agencies and third party agencies. First party agencies pertain to the subsidiary or department of any given company that possesses the original debt. However, since they can be linked to the original creditor, these agencies are not subjected to the so-called Fair Debt Collection Practices Act. The usual ritual is for creditors to retain the bad accounts to these first party agencies for 6 months and then they pass it to third party agencies. Third party agencies, on the other hand, would literally pertain to the idea of a collection agency because they are not part of the original deal. Once the creditor assigns these bad accounts to third party agencies, the agreement is on a contingency-fee basis. This means that it will not cost anything to the creditor but only charges for the communication with the debtors.
Creditors typically send debts to a collection agency in order to remove them from their accounts receivable records; the difference between the amount collected and the full value of the debt is then written off as a loss. In many countries, collection agencies are governed by laws that prohibit certain abusive practices. Failure to adhere to such laws may result in lawsuits or government regulatory actions.
