Back

Businesses that pursue past due and late bills are collection agencies. Most collection agencies make money by charging a fee to collect the debt or make a percentage of the total debt collected. “Debt buyers” are collection agencies that purchase charged-off debt for pennies on the dollar and then aggressively pursue the debtor for the full amount of the debt or for a percentage of the debt due, usually fifty (50) percent or more. By utilizing a collection agency, a creditor can remove the past due account from their accounts receivable record; the difference between the amount collected and the total amount due is recorded as a loss.


First party collection agencies are typically in-house or subsidiaries of the creditor and usually handle past due accounts less than six (6) months old. The debtor is called the second party. After six (6) months, the debt is usually charged-off and passed or sold to a third party collection agency. Third party collection agencies are not a party of the original written contract. The past-due account sometimes is transferred to the collection agency on a contingency-fee basis. A “No Collection No Fee” basis only pays a collection agency if money is actually collected from the debtor. Either way, the typically collection fee ranges from fifteen (15) to thirty-five (35) percent. A soft collection or pre-collection service provides a series of letters informing the debtor of the past due account and how the account can be settled in full.

Third party collection agencies are regulated by the Fair Debt Collection Practices Act (FDCPA) of 1977; the Federal Trade Commission (FTC) administers the federal law. Collection agencies that violate the FDCPA can be liable for monetary damages, awarded to the debtor.

Name Location Comment Before you submit your comment, please write the characters in the image above.

Back