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What are the Ethical principles of Debt Collection?

What are the Ethical principles of Debt Collection

Some individuals employ half of their cleverness to incur debt and the other half to evade paying it. Delinquent debtors are contacted by debt collectors via letters and phone calls with the intention of persuading them to clear their debt. Debt collectors use computer software to conduct additional research when they are unable to contact the debtor using the information provided by the creditor.

If the debtor is unavailable then through skip tracing service we can know the whereabouts of the debtor. A professional approach is more suitable to ensure payment of bad debts. This helps to maintain relations with individuals and business partners. Now the question arises how to maneuver through the process of debt collection? To make it easy, let’s look at some ethical practices that can enable smooth recovery of debts while maintaining the image of your company.

Ethical Debt collection Practices

1) Self Introduction – Introduce yourself and the organization when you start communicating with the customer. It is necessary to display authority letter upon request when collecting dues and make it clear that you are from a debt collection agency. Collectors should perform their role within the framework of the instructions issued to them and specifics of collection procedure.

2) Instill moral principles – The organization should motivate their debt collectors to strictly follow ethical framework. All the transactions and actions of a debt collector in the process of administering and collecting debts shall at all times be just, fair and honest. In the course of debt collection, a debt collector shall not deliberately lie about, or misrepresent any fact, truth, instruction or mandate in any way.

3) Precautious on Visits – The debt collector should not invade the privacy of your client by not forcefully entering the residence. It is vital to be aware and do not embarrass the customer in the presence of his/her neighbors. If the customer is not present, then Debt Collection Agent should end the visit with a request that the customer call back. He should not enter the house unless invited.

4) Explain Consequences – If the customer refuses to pay then explain in detail the possible consequences that he/she might face in a well-respected and polite manner. Describe in detail the possible legal actions that can be taken and also the possibility of triggering arbitration clause.

5) Strategize payment plan – If the customer is financially stricken and is not in the situation to pay the debt then sought out for a design plan. Communicating with the customer can help you know how can the individual pay off their debt. This can help you come up with alternative strategies to enable customers resolve debts. Remember that you are representing your creditor so be polite and empathetic. Also, you are representing your Debt Collection Organization.

Challenges faced by Debt Collection Teams

1) Staying updated about laws and regulation –

2) Adaptation to technological advancement

3) Outdated Data

4) Inadequate communication

5) Improper Prioritization of customers

6) Unable to maintain positive customer relations

Tips to achieve success in Debt Collection

1) Conduct research – Do your homework by thoroughly looking into the profile of debtor and use the information given by creditor to be in a better position to handle the debtor. Get factual information such as credit score, payment history and the due amount will give valuable insights. Your research will definitely help you during the negotiating and make debt collection process smooth.

2) Be Strategically Persistent – Chances of debt collection becomes very thin if you are not consistently reaching out to debtors. It is vital to constantly reach out with an omnichannel approach which increases your chances of collecting debt. The omnichannel approach includes contacting the debtor through emails, phone calls, automated texts, letters, etc at the right time for different purposes.

3) Keep records of your attempts – It’s crucial to keep a record of every attempt at collection while attempting to collect on a past-due account. Include the time you called, a few highlights of the conversation, and the outcome. You can break down your contact attempts into many key elements to make it simpler. At Taurus collection we have established certain steps to make debt collection easy which are as follows:

  • Payment reminders
  • Past due payment notice
  • Final Notice
  • Direct Customer Contact
  • Letter of Demand

4) Centralize your debt collection – Empower your team with critical pieces of information at every stage of collection process which would require you to setup processes and mechanisms in place. Make use of latest software to centralize the debt collection information to make the process seamless. This makes the team aware of the pain points and enables them to address it accordingly. The central database system helps the collectors in following ways:

  • Automated dials
  • Notification to review pending account
  • Send alerts when issues arise
  • Easy navigation of receivables information
  • Cross-team collaboration
  • Dissemination of Information

Pre-requisites for clients when giving credit

1) Know Your Customer – Prior to offering your customer any credit you need to obtain basic information such as follows:

  • Director & Proprietor names – Aadhaar card or driving license
  • Trading name and full address
  • Contact details – emails, mobile and landline number
  • GST and CIN number
  • Two trade references

2) Customer’s credit history – Consider running a commercial credit check on each new customer account before granting credit. This information can be obtained through credit reporting agencies and help you to gauge the customer’s financial situation.

3) Offer multiple payment options – Keep the cashflow running by offering multiple payment options to your business partners. Consider the following options:

  • Accept credit and debit cards for payments. Make sure to setup a merchant or payment platform for credit card payments.
  • To receive payments in the form of deposits you can offer discounts for advance payments.
  • Partial payments can be a good motivator for your business partners to pay monthly or quarterly

4) Mention terms & condition in invoice – Draft an accurate invoice by stating the terms and condition covering all legal aspects and necessary details of payment, warranty, returns/refund and arbitration clause. It is vital to add “Errors and omissions expected” phrase to reduce legal liability incase of potentially incorrect or incomplete information which can be rectified with suitable adjustments.

 

Why Debtors are more likely to pay Collection Agencies?

Debtors frequently pay attention when a debt escalates from the original creditor to a collection agency. The debt becomes more real when a collection agency starts calling. In order to encourage payment, collection firms are also skilled at speaking with debtors. They compel consumers to pay using a highly developed toolkit of psychological strategies. Instead of positioning themselves as an enemy, they can serve as a middleman or present themselves as a resourceful friend. Initial debt collection efforts should surely be made, but once it appears that your credit cannot be recovered, you should rely on a collection agency. Although their fees may appear expensive, atleast keeping 70% of a debt that you would not have otherwise been able to collect is a net beneficial transaction. Additionally, the service is free so if you don’t receive anything then it’s a win-win situation.

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