How to recover debt
When we lend money we do not think indebtedness may happen. But when the debt is not paid you are faced with the question of how to recover debt.
This question regularly appears before directors of companies which sell on credit or grant loans. Moreover, in most cases the company is the link in the supply chain itself (dealer, distributor, wholesale supplier etc), which means the company can become a supplier’s debtor itself. The simple way to avoid problems is working with prepayment, however the market tends to dictate its own rules.
Let’s observe different strategies used by companies to recover debt.
1) Wait for debtor’s to experience a better time (end of the crisis, debtor’s business starts to generate money etc). Most of creditors do so for very long periods of time. Most of creditors await debtor’s actions and adopt a passive position. The reasons for this approach varies, but usually they will aim to maintain friendly relations with debtors, because they fear to lose business partner or client, fear to lose a business reputation and many others factors. At the same time debts earlier than 3 months are easily recoverable in 73% of all cases due to adopting the right strategy and decisions. However most of the usual creditors only waste time waiting for payments and start to think seriously how to recover debt after 3-6 months has expired.
2) Whilst time is passing the debtor may continue to promise payment (or even worse, refuse to acknowledge the debt), a creditor will start to think about more active position and usually goes to a lawyer, either in-house ones or to outsourcing. Many legal companies offer debt collection services now. But what does the creditor receive in this case?
The most legal and advocate companies as well as private lawyers offer one way to resolve the problem – go to court independently with specifics of the case.
The main problem in such an approach is the court award is no guarantee for receiving the outstanding monies. Moreover, the creditor has to pay the legal costs and disbursements and waits all this time for judgement and execution. Most cases have the same result – they are returning by the bailiff to the creditor unexecuted due to it being impossible to locate the debtor’s money and / or property.
3) When all legal procedures are finished and creditor understands that it is impossible to return money, because legal enforcement is useless and relations with debtor are spoiled, he starts to search other ways to collect debt.
Sometimes creditors try to resolve this problem asking some street collectors or even corrupt state authorities to help with collection. Usually such people seek a large prepayment and 50% of any of the debt collected. A creditor usually thinks this way is effective and doesn’t think about the consequences of such cooperation; for example losing prepayment or business reputation, similar illegal counteractions from debtor’s side or even the responsibility for such actions before law.
4) Those who take care about reputation sometimes try another kind of action – try to sell the debt. However, factoring companies which deal with debt purchase buy only portfolios of consumer debts with discount 90-95%. Classical factoring works with performing debts only, thus it doesn’t work with bad non-performing debts. Purchase of commercial debts is very risky; purchasing of single consumer debts is not profitable, thus no one factoring company deals with that type of business.
Being faced by debt problems it is hard for an ordinary creditor to make the right decision as to how they should proceed. It is necessary to collect and analyze all information very carefully, considering all pros and contras and look to find the right way.
A professional collector can help to recover debt. The main business for such collectors is not only debt collection, but also protection of the creditor’s reputation and sometimes keeping even good relations with debtor. A professional collection company can collect and evaluate all necessary info and build the right procedure to return money delivering the creditor from unpleasant necessity of having to collect their debts.
An important argument for cooperation with collection companies is the fact respective collection companies work without pre-payment on a contingency basis.
According to the statistic of LECCIS every third debt is recovered if professional collection actions are taken on time.
Certainly, all creditors need to consider what way and the methods of resolving debt problems they should choose, however, it is very important to think about all pros and contras of each way and if possible attract professionals to do the job quickly, precisely and in professional way.