Debt buyers? Collection agencies? They’re different? But, I thought they were basically the same thing?

These are the questions that run through the average person’s mind when discussing debt buyers and collection agencies. Most people don’t know the difference because they simply don’t have much knowledge of the debt collection industry overall.

First, all debt is either owned by a creditor or a debt buyer. The three major differences between debt buyers and collection agencies are ownership of the debt, age of the account, and difficulty to collect on the account.

To make it simple, debt buying is exactly what it sounds like. Debt buyers buy accounts from a creditor for pennies on the dollar. Creditors are willing to do this because there is a point at which they need to cut their losses and get whatever amount money they can. The debt is then owned completely by the debt buyer and it becomes their responsibility to collect on this debt if they want to make a profit.

When the creditor sells the debt to the debt buyer, the debt buyer may elect to hire a third party collection agency rather than trying to collect the debt themselves. The same goes for a creditor—an agency can be hired as a third-party collector. The creditor and collection agency work out an agreement that gives the collection agency a percentage of the debt collected. Both debt buyers and creditors count on the collection agency to collect the debt.

Age may just be a number to some, but in the collection industry it’s very important. Debt that agencies generally collect on is only a few months old and rarely older than six months. Debt bought from a creditor, on the other hand, is “old” relative to other debt. This debt is usually about 3 years old.

Some accounts are collectable, but the creditor may not have time or resources to collect the debt. The creditor may choose to place the accounts with a collection agency to collect a maximum amount over a course of months or years and/or choose to sell that portfolio at a percentage of the portfolio amount for an instant cash infusion. While selling the debt may not accrue as much of a return as traditional debt collection, the ROI is immediate and accounting can be closed out for good on those outstanding balances.  While medical debt is restricted from being resold by the purchaser, most of all other debt can be bought and sold multiple times across many years.

If you find yourself having a hard time distinguishing between a debt collection or collection agency, or if you need help recovering past-due invoices, we can help. Contact us today to see how we can help you find your money everywhere.

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