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Understanding Debt Collections Policies and Procedures

Collection Processes Explained

Whenever you have an unpaid invoice, it’s essential to know how the collecting process works so you can make an informed decision on bad debt recovery. Different agencies have different collection processes, depending on the client, the debt’s age, and the type of debt involved.

Here’s what you need to know about the debt collection process and how your chosen agency may choose to recover your outstanding account receivables.


How Do Debt Collectors Work?

Most agencies opt for a gradual escalation from the day a bill goes unpaid. Generally, it’s best to send someone to collections after 90 days have elapsed. Take a look at this debt collection process flow chart for insight into common debt collection policies and procedures.

Step One – 0-30 Days

During the first month, it’s considered best practice to contact the delinquent client. Most invoices go unpaid simply due to forgetfulness or a failure to have received an invoice.

Step Two – 60-90 Days

After a debt is two to three months past due, it’s time to become more aggressive with your collections procedure. Polite, encouraging contact should still be made. It’s not too late to work out a payment plan. 

Step Three – 90+ Days

Once a debt is three months past due, sending a formal demand letter drawn up by an attorney is a reasonable course of action. Many clients are scared to pay through these letters. Avoid threatening legal action without consulting an attorney.

At this point, it’s time to send the debtor into collections. You may choose to either sell the debt for pennies on the dollar or assign the case to collections.

Once the debt has been turned over to a collections agency, they may file a lawsuit. Depending on the collection agency process, lawsuits may be filed immediately or after a short period of attempting to contact the client.

Typically, lawsuits are filed anywhere from four to six months after nonpayment.


Hiring an Agency: How Do Collection Agencies Work?

The big difference between most agencies is whether they operate using a standardized or a custom debt collections procedure.

Rigid collection processes are more cost-effective for clients and are favored by larger agencies. They use the same strategies for collecting debt for everyone, regardless of the type of debt or the amount. This reduces costs but may lower the overall collection success rate. 

Some of the techniques used include: 

  • No debt analysis. Money owed is money owed.
  • Bulk mailing campaigns.
  • Pre-defined services.
  • Pre-approved scripts. 

Customized processes differ as there are large amounts of research that go into each delinquent account. Agencies develop detailed action plans for their clients on these plans.

 As a rule, the rigid or standardized approach is a superior option for low-value debts, where cost minimization is the most critical aspect of the service.


What Does a Debt Collector Do?

So how does collections work in practice?

Federal and state laws heavily control collection processes. Professional debt collectors must hold a license in a majority of states and must also comply with several rules, including avoiding harassment and identifying themselves immediately upon contact with the debtor every time.

All debt collectors and consumers must be aware of the Fair Debt Collection Practices Act (FDCPA), which prohibits collection agencies from employing abusive or deceptive practices to collect money owed.


Sending a Debt Validation Letter

The first step a collections agent takes is to call the customer to verify their identity and persuade the customer to repay their debts.

Within five days of this initial contact, debt collectors are required to submit a debt validation letter. This must include:

  • Total amount owed.
  • The name of the creditor.
  • Statement that the debt is assumed to be valid if no dispute is made within 30 days.
  • Statement indicating that the collector will supply the consumer with information about the original creditor within 30 days.
  • Statement showing that the collector will verify the debt, if disputed, within 30 days by mail.

This does not apply to commercial debt. There are very few rules surrounding commercial debt, so collection rates tend to be higher when agencies are brought in to collect business debt.


How to Tell if a Collections Agency is Reputable

When hiring a collections agency to manage your needs, look for the Better Business Bureau (BBB) accreditation. This is a mark of quality and authenticity for any business.

Here are some other green flags to look for:

  • Ability to operate nationwide, rather than just in a handful of states.
  • Compliant with all regulations, including HIPAA and the FDCPA.
  • Easy to contact through nationwide call centers.
  • Multilingual agents for eliminating communication barriers.
  • Commitment to cybersecurity to ensure no downtime.



Sending someone to collections is never a pleasant experience. If this happens, let the Collections Bureau of America handle your case with the care and courtesy you and your debtor deserve.

The experts at our collection agency will outline the collections process and discuss how we can maximize the chances of you getting your debt repaid. Contact us today to find out more.