What is a third party collection?

Third party collection is a form of debt collection performed by a third party, person or entity that was not a party to the initial transaction or contract. Creditors may turn to third parties when their own collection efforts are not effective. The activities of third party debt collectors are limited by law in many regions of the world and people who are in debt are advised to ask about specific laws in their regions as debt collectors sometimes try to circumvent the law when they make an effort. to collect a debt.

Many large companies have their own billing departments. Initially, these departments will try to collect the debt internally for the company. If the debtor does not respond, the company can hire a collection agency specializing in third-party collections. Smaller companies can immediately turn to an agency because they cannot maintain a collection department.

Classically, third-party collection begins with a series of letters, for which the creditor pays a flat fee. The letters encourage the debtor to pay the debt in full to the creditor. If there is no response, the creditor relinquishes the account to the agency and the agency can take more aggressive steps to collect the debt. If the debt is collected, the agency retains a commission and sends the rest to the creditor. Creditors want to avoid third-party collections because that means they cannot collect the debt in full, thanks to the commission that must be paid.

Collection attempts may include letters and phone calls to the debtor. Depending on the jurisdiction, the agency may file suit on behalf of the creditor and take other steps. If someone else has signed off on the debt or assumed responsibility for a debtor's outstanding debts, third-party collection may include attempts to collect the debt from that person and the original debtor. However, a third-party collection agency generally cannot seize property belonging to the debtor unless a lawsuit has been filed and ruled in favor of the collection agency.

It is important to note that when third-party collection takes place, the creditor still owns the original debt. Creditors can also choose to sell their debt to companies that buy debt and get paid for it. When the debt is purchased, the new buyer becomes a creditor. Companies that buy debt can be quite aggressive, and people who owe money should try to work out a payment or settlement plan before the original creditor sells the debt.