Collection Agencies Key Terms

Understanding the debt-collection process and the restrictions put on collection agencies

As a business owner providing goods or services, you may occasionally run into a client who refuses to pay an outstanding bill. While you can attempt to collect this debt on your own, collection agencies have more resources available to them and can often be more successful. As you consider hiring a collection agency to collect debts owed to your business, it's important to know key elements of the collection process, as well as laws and regulations that collection agencies must abide by.

 

Demand letter

A demand letter is what the collection agency sends to the debtor before proceeding with a lawsuit. Basically, it states that the debtor has 30 days to either make payment arrangements or pay the debt in full. Failure to comply means it's time to go to court.
Try: Discover more about the construction and purpose of a demand letter from Nolo.

Skip tracing

Skip tracing is a means of locating someone who is evading collection on a debt owed. Basically, a collection agency exhausts all possible leads, including credit reports and public records, to locate a missing debtor. The more information you have (Social Security number, date of birth, middle name and so on) the more likely you are to find the debtor through skip tracing.
Try: Visit Collection Agency Services for more information on skip tracing. Get a better idea of what skip tracing is at Experian.

Judgment

The judgment is the court's official decision in a lawsuit. Basically, it states how much the debtor owes to your business or the collection agency on your behalf.
Try: Check out the information on collecting on judgments from the Legal Aid Society of Orange County, CA and the Volusia County Sheriff's Office in Florida. While collection procedures differ in each state, this information will give you a better understanding of what a judgment is and how it helps the collection agency recover the funds owed to you.

FDCPA

FDCPA stands for Fair Debt Collection Practices Act. Congress passed this act due to concerns that collection agencies were harassing debtors and leading to more bankruptcy filings. The FDCPA strictly regulates the process by which a creditor or collection agency can attempt to collect a debt.
Try: Find answers to frequently asked questions about FDCPA on ExpertLaw, or read the FDCPA yourself through the Credit Info Center.

FCRA

FCRA stands for Fair Credit Reporting Act. The FCRA requires collection agencies to report accurate information to credit bureaus in regard to unpaid debts. In 2003, amendments were made to the FCRA, known as FACTA (Fair and Accurate Credit Transaction Act) of 2003.
Try: Visit Debt Consolidation Care for more information on FCRA and FACTA.

GLBA

Collection agencies also have to abide by the GLBA, which stands for Gramm-Leach-Bliley Act. The GLBA restricts the sale of consumers' personal information, such as bank accounts and Social Security numbers. Collection agencies can use that information only for the purpose of collecting a debt and nothing more.
Try: The Electronic Privacy Information Center provides a lot of information on the GLBA.

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