Debtors are a Risk for Business

Debtors are a Risk for Business


Any business that wants to expand will find itself having to offer credit to its customers either private or corporate.As with all risks this risk of having debtors not pay their accounts can be managed and the Risk Manager’s of this risk are Credit Managers and / or Credit Staff and Debt Collectors.

As companies expand their business so the possibilities of debtors failing to settle their accounts grows if only because of the number and statistical probability. To offset that possibility many companies enter into a contract with a Credit Management company or Debt Collection firm in which the company will collect any outstanding debt at an agreed percentage rate on the proviso that no charge will be made whatsoever unless money is recovered. This is known as the no cure no fee rule coined from the old Lloyds salvage insurance agreement.

The number of debt collection companies is expanding in line with the increase in number of debtors failing to pay their accounts that businesses are now experiencing.

As a result the rates are competitive and reducing all the time. However businesses are well advised to carefully look at the success rate of collection rate of the selected debt collector and not only the rate. It is better for example to pay 35% to a company that will collect 50% of your debts rather than 20% to a company that will only collect 25%.

Many debt collection services offer an investigation service and skip tracing service again this expression is coined from another industry, (the bail bondsmen of the US who have to trace people who have “skipped” their bail).

As many risks can be mitigated by carefully investigating them first there is a tendency for investigation companies to become Risk Management companies as well.

These investigation and debt collection companies operate in much the same way globally.
They start by finding the debtor and then telephone him and at the same time write and explain that there is s debt and that the company to whom the debt is owed have employed the Debt Collection company to collect the debt.

The matter will then proceed whereby the debt is paid in small amounts or indeed in one payment but should neither of these be possible then it is likely that legal action will have to be taken by the debt collection company to ensure the debtor is brought to court and made to settle his debt legally.

The efficient operation of the Debt Collection Company is essential to the business who have debtors, as far too often often outstanding funds represents the profit the company would have made.

Many people do not realise therefore that Debt Collection adds to a companies profit directly by the monies they
collect for the business from debtors.

The most important factor to consider when choosing a Debt Collection Company is the success rate of that company as well as its ethical standards and compliance with the ever increasing local, national, and international laws relating to debt collection, as well of course as the rate they charge.

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