How To Collect Debt Effectively
Debts are a central part of financial life, but if someone defaults on your debt, you may ask how to collect debt.
There are many collection techniques, but you have to choose the most suitable one according to your debt’s variable factors.
What is debt collection:
Before answering the question “how to collect debt” we have to explain what debt collection accurately means since it helps us to understand the different aspects of the collection process.
We can define debt collection as a group of steps aiming to recover an outstanding debt from the borrower, these steps range from sending friendly notices to filing a lawsuit.
The original creditor can handle the collection process initially, but later, they may need to hire a debt collection agency to professionally manage the debt collection.
Also, you have to know that getting a debt paid off is not the only target of debt collection since it aims to recover the debt with the lowest costs while maintaining good relationships with customers or other businesses and consequently a good reputation that guarantees to improve the business in the future.
Influencing factors of Debt Collection :
Many factors affect the answer to “how to collect debt” since no two cases are the same, so each overdue debt should have a customized collection strategy planned for it depending on its different circumstances.
So before collecting the debt you should analyze many influencing factors of the collection process to enable you to choose the best strategy for your claim, so let’s discuss some of these important factors:
- The type of debt: Generally, we can categorize debts into two types: personal debt and business debt. The term “personal debt” refers to debts owed by individuals, it includes borrowing money from a friend, unpaid bills, overdue rent, or accumulated installments from purchasing retail goods. Concerning “business debt”, it is also known as commercial debt, in which the debtor is a business, not an individual. It includes business loans, unpaid Supplier Invoices, Commercial Property, or unpaid Taxes.
- Understanding the debtor: you should understand who the debtor is to know how to deal with him and identify the debtor’s situation and his excuses for not repaying the debt.
- The appropriate communication channel: you have to determine what is the best communication channel for each debtor since you may send messages, emails, post letters, or contact via phone.
- The available documentation of the debt: this should be analyzed before going through the collection process to decide what is the best strategy to follow in this case.
- The collection stage: It is very crucial because debts in the early stage of the collection are more likely to be recovered than debts in the late stages and also it helps you determine the potential recovery amount of the debt.
How to collect Debt Amicably :
The amicable solutions of debt collection can be categorized into two key phases: contacting the debtor and negotiation
Contacting with the Debtor :
Typically, most collection processes begin with contacting the debtor, this communication is better to be performed professionally to yield the best results.
Through this phase, you need to know why debt is not paid and comprehend all the circumstances of the debtor and if he doesn’t want to pay off the debt or he really faces financial hardships and why.
pay attention that Keeping a good relationship with the debtor is very crucial, the debt collector needs to behave ethically and show respect and empathy as well.
This phase also includes sending amicable reminders via the chosen communication channel.
Negotiation and Payment Options
In this phase, you have to be ready with multiple payment choices to facilitate debt recovery, such as:
- Paying in one lump sum
It means that the debtor will repay the full amount of the debt at once.
- Installment payment
In this case, the borrower will pay off the whole amount of the debt but in small installments, these installments are managed to be paid regularly during a specific time.
- Debt settlement
it means that the debtor will not pay off the total amount of the debt, instead, the debt will be reduced to facilitate paying it off so it is sometimes called “partial payment”.
- Deferred Payment
If the debtor needs more time to repay the debt, you can grant a time extension, but he will ultimately pay the full amount without any reduction.
Additionally, there are many other solutions to facilitate the debt pay off, for example, the debt collection agency can suggest the debtor apply for a loan from a third party to repay this debt. Or they can help him solve some temporary financial troubles to get enough liquidity to repay the debt.
Eventually, if all the amicable attempts don’t yield results you need to take legal actions to recover your debt.
How to collect Debt Legally :
Legal debt collection is necessary when other non-legal solutions are not successful.
The type of debt and the available documents determine what is the suitable legal action for the claim.
At the beginning the lawyer will send a legal notice to the debtor, this action proves the seriousness of the collection process and gives the debtor a chance to pay off the debt without being involved in complex court proceedings.
If the borrower doesn’t repay the debt after the legal notice, the lawyer will escalate the claim to the specialized court, these measurements differ from one country to another according to the laws governing debt collection.
Finally, The answer to the question of “how to collect debt “is that debt collection is a complex process that comprises amicable and legal solutions, you have to start collecting your debt after the due date by sending friendly reminders but if the debtor doesn’t pay off the debt after 3-6 months from the due date you have to hire a trusted debt collection agency as soon as possible since they can professionally deal with the debtor and persuade him to repay the debt.
The last resort of debt collection is the legal procedures that should be performed by the attorney to avoid any troubles.