What is a collection company: roles and missions
In today’s uncertain economic context, collection companies play an essential role by acting as essential players in customer relations. However, their operation often remains unknown to the general public.
This article aims to shed some light on this industry by exploring in detail what a collection company actually is . We will discuss its definition, the circumstances in which it occurs, as well as the rights and responsibilities that govern its activity.
By emphasizing the benefits it brings to creditors and debtors, we will highlight the key role of these companies in preserving the financial health of the companies that mandate them.
What is a collection company? Definition and role
A debt collection company is a company that specializes in recovering unpaid debts on behalf of creditors . In other words, it helps businesses and financial organizations recover amounts owed by their debtor customers.
When a debt remains unpaid despite initial attempts by the creditor to recover the funds, the latter may call on a collection company to intervene. Under mandate, this company is then responsible for contacting the debtor, negotiating a repayment plan, and recovering the amount due in compliance with the laws and regulations in force.
The rights and responsibilities of debtors
When a debtor is facing financial difficulties, he or she may be tempted to ignore calls and follow-up letters from creditors or collection companies. However, this approach is generally not recommended, as it can make the situation worse. In order to protect consumers, the rights of debtors against collection companies are protected by specific laws.
Not paying your debts: is this an option for the debtor?
Ignoring debts can result in additional interest , late fees, and penalties, further increasing the total amount owed. Additionally, this approach can harm the debtor’s credit rating, making it more difficult to access financial services in the future. It is essential for debtors to proactively address their financial problems and seek repayment solutions tailored to their situation.
Consumer protection against collection companies: rights of individual debtors and applicable laws
Debtors are protected by specific laws aimed at preventing any abuse and inappropriate practices on the part of certain collection companies.
In France, debt collection companies are required to respect the laws of the Consumer Code and the Civil Code (1), requiring:
- A legal limitation period for debts set at 2 years if the debtor is an individual,
- The ban on contacting the consumer between 8 p.m. and 8 a.m., nor on Sundays and public holidays,
- The identity of the creditor, the amount owed and the nature of the debt are information that must be transmitted in all correspondence sent,
- The amount paid by the debtor must be allocated in priority to the repayment of the capital, then to interest and any costs.
Understanding Collection Companies
At the heart of financial issues and commercial relationships, collection companies are at the forefront of ensuring the recovery of unpaid debts . In order to better understand how collection companies work, it is essential to understand the role of the debt collector.
The role of the debt collector in the commercial relations of a company
The collection manager, often on the front line of the relationship with debtor customers, wears a double hat: that of a recovery expert, but also of an outstanding communicator.
As a mediator, the debt collector knows how to demonstrate empathy and active listening . He may also be able to understand the debtor’s personal and financial situation to propose suitable repayment solutions. This human approach promotes constructive and respectful dialogue and better mutual understanding.
But what truly sets a good debt collector apart is their power of conviction. He must be able to present the facts in a clear and convincing manner , explaining the consequences of non-payment while emphasizing the advantages of rapid settlement. Mastery of persuasive communication is a major asset in reaching a reimbursement agreement that is satisfactory for all parties involved.
The objective of collection: what does a collection company really aim for?
The role of collection agencies is not limited to demanding payment of overdue invoices. Above all, they work to find suitable solutions so that debtors can honor their financial commitments. By promoting the recovery of unpaid debts, these companies help to preserve the financial health of creditor companies.
The workings of a collection company
Collection companies act as essential cogs in the management of companies’ receivables by implementing specific methods to reach settlement agreements. Find out when to use these agencies and what methods are in place to recover debts.
First steps: when does a collection company intervene?
A collection company generally intervenes when attempts to follow up on the part of the creditor have not been successful. When a debt remains unpaid after several reminders and notifications, the creditor can call on a collection company to initiate amicable recovery actions. These companies intervene at different stages of unpaid debt, depending on the specific policies of the creditor or the nature of the debt.
Collection methods: how does a collection company go about recovering debts?
Collection companies use a variety of methods to recover unpaid debts.
- Analysis of entrusted receivables first
Once outstanding debts are assigned, they generally begin by analyzing each overdue invoice to determine the best collection approach. This may include assessing the debtor’s financial situation, verifying the validity of the debt, and reviewing documents related to the debt.
- Amicable negotiation
Then, they establish initial contact with the debtor, whether by telephone, mail or e-mail, to recall the debt and negotiate a repayment agreement. Depending on the debtor’s situation, they may offer staggered payment plans or arrangements adapted to their financial capacity.
- Judicial debt collection
If the debtor disputes the debt or does not cooperate, debt collection companies may use stricter methods, such as taking legal action. This may involve preparing and filing a complaint, attending court hearings, and obtaining a judgment. And in the event of a judgment in favor of the creditor, they can use various legal means to seize the debtor’s property or wages in order to repay the debt.
- Reporting and monitoring of recovery actions throughout the process
A good debt collection company maintains accurate records of all activities related to each debt, including payments received, actions taken, and associated costs. She communicates regularly with the creditor to provide updates on the status of the collection.
And if recovery fails: what happens next?
Despite all efforts made, recovery may fail in certain cases. In such situations, the creditor may decide to forgo debt recovery or sell the debt to a specialized collection agency. Unpaid debts may also be written off as losses in the creditor’s financial statements to enable the creditor to recover the VAT. For this he will need a certificate of irrecoverability.
In all cases, the recovery process offers debtors a chance to regularize their financial situation while allowing creditors to recover the funds necessary to maintain their activity.
The rights and responsibilities of collection companies
All collection companies must comply with strict laws and regulations, including consumer protection and ethical collection practices. Specific rules of conduct vary from country to country and even jurisdiction to jurisdiction.
What is the legal framework for the actions of collection companies?
The activities of collection companies are governed by a strict legal framework in order to protect the rights of debtors and prevent abuse. These rules aim to ensure that collection practices are fair, professional and respectful of the rights of those involved.
- The collection company must be mandated by the creditor
The collection agency cannot start a collection procedure without first entering into a written agreement with the creditor, in which it is given the authority to receive sums on his behalf. This agreement or contract must notably mention the following elements:
- The basis and amount of the sums due,
- The conditions and terms of the guarantee given to the creditor against the financial consequences of civil liability incurred due to the debt recovery activity,
- The conditions of remuneration of the collection agency payable by the creditor,
- The conditions for repayment of funds collected on behalf of the creditor.
Find all the details in Article R124-3 of the code of civil enforcement procedures .
- The collection agency must communicate with its client
At each stage to recover the amounts due, it must notify:
- The receipt of even a partial payment from the debtor and which is not the result of the execution of an installment payment agreement already known to the creditor,
- Any proposal by the debtor to discharge his obligation by any means other than immediate payment of the amount claimed.
For more details, refer to Article R124-5 of the code of civil enforcement procedures .
- Relations with debtors are strictly regulated
The collection company must send the debtor a letter containing the following elements:
- The company name of the debt collection agency, its address or head office, the indication that it actually carries out an amicable collection activity,
- The name of the creditor who mandates it, his postal address,
- The basis and amount of the amount due in principal, interest and other accessories, distinguishing the different elements of the debt, and excluding the costs which remain the responsibility of the creditor in application of the 3rd paragraph of article L111 -8 of the code of civil enforcement procedures ,
- Indication of having to pay the amount due and the terms of payment of the debt,
- Reproduction of paragraphs 2 and 3 of article L111-8 of the code of civil enforcement procedures: recovery costs undertaken without an enforceable title remain the responsibility of the creditor, unless they concern an act whose performance is prescribed by law to the creditor. Any stipulation to the contrary is deemed unwritten, unless otherwise provided by law. However, the creditor who proves the necessary nature of the steps taken to recover his debt may ask the enforcement judge to leave all or part of the costs thus incurred to be borne by the debtor in bad faith.”
- The collection company must also send a receipt to the debtor for any payment. Articles R124-4 and R124-6 of the code of civil enforcement procedures
In the majority of cases, the conciliation between GESTION CREDIT EXPERT and the debtors ends with an amicable agreement. If the debt is disputed, the debtor always has the possibility of exposing the dispute to the agency or requesting clarification on the unpaid file.
The GESTION CREDIT EXPERT ethical charter
GESTION CREDIT EXPERT stands out for its commitment to scrupulously following a code of conduct formalized in its ethical charter. This document is based on 12 ethical principles of action. Among these principles are respect for people and privacy, respect for confidentiality and professional secrecy, respect for personal data in accordance with the GDPR, and guaranteeing the accuracy of financial transactions.
Transparency, honesty, a sense of service and results are also an integral part of GESTION CREDIT EXPERT’s values, guaranteeing clear and frank communication with its clients, debtors and all other parties concerned.
Working with a collection company
Working with a collection company can be an effective solution to manage these delicate situations of unpaid debts. Let’s discover the advantages for creditors of hiring a collection company, the criteria for selecting the right agency and the keys to effective collaboration.
Why hire a collection company? 4 advantages for creditors
Hiring a collection company has several advantages for creditors:
- Frees the company from the tedious task of collection, allowing it to concentrate on its core activities,
- Provides the creditor with expertise accompanied by specialized resources, which increases the chances of recovering funds,
- Improves the creditor-debtor relationship,
- Ensures respect for the debtor’s rights by mastering the laws and regulations relating to debt recovery.
How to select the right collection company?
Reputation, expertise and reliability are the key words of a good collection agency . A collection company with solid experience and a thorough understanding of the specifics of the field can better communicate with debtors and achieve effective results. Also make sure that the agency respects the ethical and legal standards of collection.
Since 2011, GESTION CREDIT EXPERT has adhered to the United Nations Global Compact, firmly supporting its ten principles. The company does not tolerate any violation of human rights, any failure to comply with international labor standards, and actively fights corruption. Its commitment to responsible and ethical conduct guides all its actions in the area of debt recovery.
How to work effectively with a collection company?
For a successful collaboration with a collection company, open and transparent communication is essential. The creditor must provide the agency with all necessary information about the unpaid debts and the debtors involved. The more precise information the agency has, the more it can adapt its approaches and find solutions adapted to each situation.
The role of collection companies goes beyond simply following up with debtors. Above all, they play a crucial role in the financial balance of creditor companies, by allowing them to recover the funds necessary to maintain their activities and honor their own commitments.
At the same time, these agencies provide valuable assistance to debtor customers in difficulty, by offering them repayment solutions adapted to their situation.
In this context, GESTION CREDIT EXPERT positions itself as an essential player for the financial stability of companies, by promoting a healthy balance between creditors and debtors. Through our ethical and transparent approach, we strive to preserve the interests of creditors while treating their debtor clients with respect and dignity.