Types of Collection Agencies

There are different types of collection agencies with each one dealing with a particular type of debt. Some of the different types include:

• Financial Debt Collection

This type of collection agency deals with outstanding debts to banks and other financial institutions. These debts take the form of car loans, credit cards and even mortgages. These credit agencies buy the accounts from the financial institutions for a low amount of money and then proceed to make money by collecting the larger amount of the debt. The financial institutions look upon these accounts as unrecoverable and therefore get some of the money back when they sell the account to a collection agency.

• Health Care Collection Agency

This type of collection agency specializes in collecting on overdue doctor's and dentist's payments as well as other health professionals. Even though a health care provider does want to give the best care possible to his/her patients, he/she also has to charge for that care. Quite often, the patients do not pay and with the hectic schedule of the professional, he/she does not have the time to spend trying to collect. The collection agency takes over the account and receives a percentage of the amount collected as its payment.

• Retail Accounts

The types of accounts covered by collection agencies in this category can include all kinds of retail businesses, such as department store accounts, telephone companies, cable or satellite TV companies and many other businesses.

• Bad Check Recovery

Cashing a bad check for a customer causes a deficit to a business. Although there is no signed agreement to pay any monies owing, the creditor still has the right to collect the money because it was fraudulently obtained. Quite often the creditor seeks other means of collecting the money, such as going through a collection agency. However, if the amount of money involved in the check is large, this is a criminal offence and it is punishable by law.

Collection agencies have the knowledge and resources available to them to collect on outstanding debts. The first contact that the agency has with a debtor is through a letter advising him/her that the bill is not paid. The tone of the letter is usually friendly asking for prompt payment to have the matter resolved as quickly as possible. This letter contains the information from the creditor about the overdue account and sets a time limit for responding, either by remitting the payment or disputing the bill.

The follow up to the letter is usually a telephone call. However, there are collection agencies that work through a call center. The agent has a list of customers to call each day and receives payment through credit card right over the telephone. This is usually the case when collecting telephone bills. Although the company has probably discontinued the debtor's telephone service, it can be restored right away once the payment is made.

A collection agency is not a credit bureau. However, they do report to the credit bureaus and when payments are not received, having such an item on a credit report is very serious.