Overdue Payments: What is Debt Recovery?

27 Sep Overdue Payments: What is Debt Recovery?

Debt Collection and Debt Recovery are two similar terms with a slight distinction. The difference lies in who is trying to retrieve the payable amount.

Debt collection is when a creditor attempts to recover the outstanding amount of the consumer’s loan or credit. 

Debt recovery is when a credit or a loan remains unpaid for a long time and the creditor reaches out to a collection agency to retrieve the owed capital. 

Debt recovery is crucial as it directly impacts your credit score. If you are at the receiving end of a notice from a collection agency, it means your credit default is on record. These delinquencies are reported and acknowledged by the credit bureaus and damage your credit score. This can potentially become a hurdle for any future loans you are planning to take. 

Let’s have a look at the commonly used terminologies

1. Debtor
   The individual who has opted for a loan or credit, and is obligated to repay the borrowed amount. 
2. Creditor
   The individual or organization that credits the amount expected to be paid back within a contracted period. 
3. Collection Agency/Third party-collector
   An organization or an individual who is reached out by the creditor to recover the pending or past over-due payments from the debtor. 

The Collection Process

The debt collection process begins when the debtor misses a payment on a loan. They have 30 days from the bill due date to make the payment before the creditor makes a report to the credit bureau. In these 30 days, the creditor will try to make contact with the debtor via email or other forms of communication. In this 30-day window, if the debtor doesn’t reach out to make a payment or set up a payment arrangement, the creditor will forward the account to another department in their organization that specializes in debt recovery. At this point, the debtor may contact a third-party collector or a collection agency instead. 

It is best for a debtor, to reach out to the creditor within the first 30 days of missing a payment. Once that deadline is missed, and the credit bureau receives a credit default report, the creditor may decide to pursue severe action. 

Managing Overdue Payments

It can be a tiring task to chase debtors and reach out for overdue payments. Your finance team is not designed to over-stretch and plan loan recovery. It might be a good idea to seek external support. 

Most creditors reach out to collection agencies as a last resort. However, seeking support at an earlier stage is the smarter decision especially if your internal team is limited. By ensuring your credit is managed by a trustworthy associate you could avoid a debtor from becoming a defaulter. This would save you expenses down the road. 

As they say, prevention is better than cure. 

Collection agencies work independently and can also be called an extension of your services. They would take the responsibility of controlling credit on your behalf. They will be in charge of issuing reminders, and statements, and planning a recovery strategy until your money is recovered. 

Relying on Trusted Resources

By allowing a third-party company to handle your credit-related finances, you are ensuring that professionals are doing the job, and they’re doing it right. They have experts with practical knowledge and experience which will come in handy in the recovery mode. Credit control is all about staying alert and on top of things. An experienced collection company would know when to take things to the next level and notch up their attempts. 

Sending notices and reminders will fail if you’re dealing with a debtor who is reluctant or entirely unable to make payments. Following up through telephonic communication, and contacting in person is the next stage. If all fails, a potential legal action warning will be the obvious solution. 

Legal measures

If your standard approach is not working, that is when your external support comes into play. The collection agency will utilize its expertise and offer you the options available to you. In most cases, a warning of legal proceedings is enough for the debtor to manage their payments. Many individuals would be keen on avoiding any permanent record on their credit rating. It would impact their ability to take future loans or conduct business. 

Choosing a specialist

In addition to hiring highly skilled agencies, you need to go for specialists who will safeguard your reputation. They will make time and effort to understand your organization and practice, understand the debtors and proceed while bearing all the factors in mind. It’s not recommended to go with experts who are aggressive in their approach from the beginning, it always is beneficial to your practice if the recovery approach is subtle, effective, and proactive. You must ensure the values your company stands for are thoroughly understood by the agency you hire. They should also bear policies to maintain complete transparency so you remain involved every step of the way. 

At HospAid, we specialize in the healthcare sector and the recovery of loans from patients. We ensure to connect with your practice and make you and your patients feel safe. Unless required, we do not believe in aggressive tactics and specialize in communication, strategy, and making successful payment plans. We are a team of focused individuals who are experts in debt recovery and ensure you receive your money back.