Debt Collection
From Open Risk Manual
Definition
Debt Collection is the collection of receivables on behalf of a third party. The term is used most commonly in the context of Consumer Credit.
It is a service offered by, e.g., a Factor (or a Receivables Buyer) where the factor or the receivables buyer collects the receivables on behalf of the Assignor. It may also include all actions aimed at collecting the due amounts from insolvent debtors.
Procedure
- A total Balance of Outstanding Amount is sent to Debt Collection Agency
- Collection is understood in terms of Cash assets
- The debt collection agency will pursue a number of legally available options within a timeframe and will achieve a certain amount of cash recovery
- The agency will also incur costs
- After the defined timeframe the agent returns the receivables back to the current creditor
- A Debt Management plan may have been agreed between agency and debtor
- Potentially the process may involve Forbearance of certain amounts
Regulation
Debt Collection is in general a regulated business with well established norms and practises, which may vary from jurisdiction to jurisdiction.
Issues and Challenges
- Debt Collection can be a significant source of complaints.
