A Guide to Debt Collection Terminology
The debt collection industry can be complex, so much so that it extends to the language used. Understanding debt collection terminology is not only important for collection agencies themselves but for those who do business with them. Because debt collection can be so confusing, clients will often have questions like “What does outstanding debt mean?” or “What’s another name for a debt collector?”. We’ll discuss the collections industry as a whole and what you need to know about formal collections terminology and debt collector slang.
What is Debt Collection?
Firstly, there’s the most important piece of credit terminology. What is debt collection? Debt collection refers to the process of pursuing debts owed by both individuals and businesses. Professional debt collection takes the form of a collection agency that employs debt collectors.
The Purpose of Debt Collection
The purpose of debt collection is to pursue delinquent debts. This could take the form of a creditor attempting to contact the person who owes them money, or could involve handing the case over to a professional debt collector. Regardless of how debt collection is handled, the purpose remains the same: tracking a nonpayer down and encouraging them to pay what they owe.
What to Know About Debt Collection
Modern debt collection involves several steps. The first step is to make contact and to communicate with the debtor. Once this has been achieved, the collector has several strategies to encourage the debtor to pay up. Understand that the debtor also has rights. Collection agents must adhere to the terms set out by the Fair Debt Collection Practices Act. Adhering to the rules ensures both the rights of the debtor are respected while giving creditors the best chance of recovering their money. Debt collection can feel intimidating, and understanding debt collection terminology can help debtors know what’s being asked of them and where they stand.
Common Debt Collection Terms
Collection terminology is not always easy to understand, but it’s important to be familiar with the collection letter definition, the Fair Debt Collection Practices Act, and some of the debt collector slang used by those in the industry. Here’s a glossary of the most common collections terms you can expect to encounter.
Money owed for products or services that were provided in advance of payment, or “on credit” as it may be referred to.
List of accounts receivable categorized by the number of days until the payment is due or the number of days that have elapsed since the payment was due.
Debts that are owed but not yet paid. Bad debt is a type of debt that is considered to be uncollectible for any number of reasons.
A professional organization dedicated to collecting payment from debtors on behalf of their clients.
The fee charged by the collection agency to recover a debt. Most agencies take their contingency fee from the debt collected.
An organization dedicated to providing credit scores based on someone’s personal credit history. The three major credit bureaus are Experian, Equifax, and TransUnion.
The party that is owed money after providing a product or service to an individual or business.
An individual or company that owes a debt to someone else for receiving a product or service.
Fair Debt Collection Practices Act
A Federal law that came into force in 1977. This act defines the rights of debtors and what collection agencies can do to recover debts. This aims to prevent harassment, intimidation, and other unfair collection practices.
An honest effort to fulfill an agreement, such as repaying a debt.
Less Than Promised
A creditor who was paid less than what was originally agreed upon.
National Change of Address (NCOA)
When a person changes their address with the U.S. postal service, this is the processing service that updates it.
A failure to make the required payment before a defined cutoff time.
Services that were successfully provided and completed.
Small payments made by a debtor to a creditor when they are unable to pay the amount in full. These indicate an intent to eventually repay the full debt.
An unsecured creditor has no preferential rights if a debtor is to go into administration or liquidation. When it comes to receiving monies owed, unsecured creditors are at the back of the line.
Leave It To The Experts at CBA
Debt collection terminology is important for creditors employing professional debt collection services and debtors who need to determine where they stand. If you are struggling to recover an outstanding debt and your current efforts have come to nothing, let the professionals handle your debtors. To learn more about how the Collections Bureau of America has helped thousands collect consumer and commercial debts, contact us today. Enjoying this piece of content? dive a little bit deeper on the topic of Commercial Collection Agency.