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What is the process for debt recovery? 24 February, 2021   

Debt recovery and debt collection are two terms that are quite similar. The differentiating factor is who is trying to retrieve the said debt. Debt collection is when a creditor is trying to collect a debt. These can come in many forms, like consumer credits or loans. These have not been fully paid by the customer and the creditor is trying to get the finances back. On the other hand, debt recovery is when a third party is hired to recover it. When a debt continues to go unpaid, the creditor can hire a third-party company, like a collection service, to make efforts to collect the money owed. Both are very important each in their own right. As with any business, it is important for everyone to be paid. In this article, we will go over the ins and outs of debt-related question.


1.      First things first


Any process of debt recovery should start with an invoice. This is normal and your clients need to receive an invoice as previously agreed upon. Whatever the nature of the transaction, there had to have been a previously agreed upon contract. When you and your customer come to an agreement this means that payment terms are also agreed upon. Most likely at this point, you only need to wait for the confirmation that their payment is being processed. Lastly, you should receive the payment without issues. This is an ideal scenario and the most common one. But, things to not always go so smoothly. Sometimes there is miscommunication or a customer is simply not satisfied with the product or service received. So, this is where things get a bit more complicated.


2.      Overdue payments


If the customer has not paid as per the terms it can be for any number of reasons. The thing is, it does not matter. Some companies may offer to be lenient in difficult times or offer grace periods. But they do not have to. If a payment is overdue a process of chasing up the invoice will start. This usually includes sending additional emails and making phone calls. These serve to politely remind the client of their financial obligations. Usually, if a formal contract was made, it may include interest. Contracts tend to have fine print that specifically states that any late payments are subject to additional interest. So, the more you are late, the more you will end up paying in the end. The creditor informs the customer of all of that and notifies them that it is in their best interest to resolve the situation.


3.      Giving a final notice


A final notice is the last piece of correspondence that is going to be sent to a client. After that, legal action is the only course the creditor can take. The final notice needs to highlight that the customer has a certain deadline. Within that deadline, the customer needs to settle any debts with the creditor. Otherwise, legal proceedings will take place. Of course, everyone would like to avoid those, as they cost a lot of money, time and effort on everyone’s part. As per any contract, it is within the creditor’s right to pursue legal action for what they are officially owed. That needs to be made abundantly clear to the customer. In case a final notice does not convince the client to settle any outstanding payments, there are different options that can be pursued.


4.      Taking legal action


Taking legal action is not something many look forward to. It is a last resort action when all other options have been exhausted. We will cover the two main approaches. The choice depends on the amount that the creditor is owed. In any case, hiring experienced litigation lawyers is always a worthwhile investment. You will need someone that will professionally represent your case. These representatives need to quickly and efficiently conclude the proceedings in your favor. Choose them wisely based on their previous experiences and track records. Client testimonials are a good place to start. Make sure you do not hire blindly and always schedule a consultation. Only then can you make an educated decision on who to hire.


5.      Option 1: Small claims court


Small claims courts allow the creditor and the debtor to mediate and reach a conclusion. As formal contracts are pretty much the norm, this usually means that the client is ordered to repay any debt. This includes any late fees and added interest. The money spent pursuing these legal actions is almost always covered by the party that loses the case.


6.      Option 2: Debt collection


The second option is to hire a debt collection agency. Such an agency acts on your behalf and collects the debt owed to you. A portion of that money will go to the agency itself, naturally. These third-parties serve to enforce any decisions agreed upon in the contract or made in court. If a client is unable to pay, they will proceed with insolvency proceedings. Lastly, assets may be seized to make up for the amount owed. These agencies relieve you of that hassle and take the responsibilities on themselves.


lastly, it is in the customer’s interest to pay off the debt as soon as possible. It affects their credit score. Defaulting on a loan is serious business and may affect future loan prospects. Of course, both parties will be well aware of this before making any formal contracts, making the business much more transparent. 

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