Have you asked yourself which is better - hiring a debt collector or selling your debt to a debt buyer?
Since the outbreak of Covid-19, and the ensuing global pandemic, many people, business and companies have started to experience some severe financial hardship.
While in some cases it is advisable to hire a debt collection agency to attempt to recover your debt, there are also some instances in which it is more sensible from a financial standpoint to write your debt off with your taxes.
In some cases, you might find that it is possible to sell your debt to a ‘debt buyer’, so to make some money before the original debtor has paid the original amount that is payable.
This option can be attractive in light of the fact that there often long delays with recovering a debt when hiring a debt collection agent, and too, often longer delays when hiring a debt recovery solicitor to sue for recovery of your debt.
Debt sales are unique in that they have a different effect on your business to the process of hiring a debt collection agency.
What is a debt buyer, and why do they buy debts?
A debt buyer is a company that will purchase debts from others for an amount that is less than the original debt (https://debtbuyer.com.au/ for example).
The sale price of the debt is generally based on multiple variables, including variables such as age, the volume of the accounts, and the initial value of the debt.
The amount a debt buyer is willing to pay for your debt may vary, based on factors such as:
- if they have their own registered debt collection agency; and/or
- whether they the plan to again sell the debt to other debt purchases; and/or
- whether they, as a non-debt collection agency attempt to collect the debt.
Selling your debt to a debt buyer
There are any number of reasons why someone would sell their debt, rather than trying to collect on the debt, including:
- Avoid Lawyers Fees – In certain situations, collecting on old debts may need legal action, which can be expensive and time-consuming. By selling the debt, the creditor can avoid these legal costs and transfer the responsibility to the debt buyer.
- Focus on Core Business - Collecting on aged debts can be time-consuming and distract the creditor from their core business. By selling the debt, the creditor can free up resources and focus on more productive activities.
- Immediate Cash Infusion - By selling an old debt, the creditor receives a lump sum payment right away, rather than having to wait for the debtor to make payments over time. This can provide a boost to the creditor's cash flow and improve their financial position.
- Increased Recovery - Debt buyers are often specialised in collecting on aged debts and have a higher recovery rate than creditors. The creditor may be able to recover more of the debt by selling it to a debt buyer than they would have otherwise.
- Reduced Risk - Selling an aged debt transfers the risk of collecting the debt to the debt buyer. The creditor can mitigate their risk and avoid the costs associated with collection efforts.
- Simplified Accounting - By selling an aged debt, the creditor can simplify their accounting and record-keeping. Instead of tracking the debt and making periodic adjustments for the debtor's payments, the creditor can remove the debt from their books entirely.
Pros of Selling your Debts to a Debt Buyer
The primary reason a company may sell off outstanding debts to a debt buyer is to receive a prompt injection of cash, and to better their cash flow.
In some instances, consumer accounts may remain unpaid for an extended period, making collection of these older debts more challenging.
For smaller businesses, the sale of past-due accounts to a debt buyer can be particularly beneficial as each delayed payment can have a significant impact on their operations, and in turn their ability to trade as per normal.
Cons of Selling your Debts to a Debt Buyer
Furthermore, there are several reasons why a trade-creditor may not want to sell their debt to a debt buyer and continue to try to collect on it, including (but not limited to):
- Client / Customer Relationships - If the debtor is a customer of the creditor, selling the debt to a debt buyer may jeopardise the relationship between the two parties. The debtor may feel misled or abused by the creditor and decide to conduct business elsewhere.
- Loss of Control - Selling your debts to a debt buyer means that the creditor loses all control over the debt. This can be a concern if the creditor has ethical or reputational concerns about the collection practices of the debt buyer.
- Loss of Future Business - If the debtor is a potential source of future business, selling the debt to a debt buyer could result in a loss of that business. The debtor may feel resentful towards the creditor and may choose to take their business elsewhere in the future.
- Possible Legal Liability - If the debt buyer engages in unethical or illegal collection practices, the creditor could be held liable for their actions. This could damage the creditor's reputation and result in legal costs.
- Reduced Payment - The debt buyer will typically purchase the debt for less than its face value, so the creditor may receive less than they were originally owed. This can result in a loss for the creditor.
To Sell or Not To Sell to a Debt Buyer?
When you as an individual, or company, decide to sell your debt, your involvement ceases completely.
While this is very much the point for many who decide to sell their debt, it is important for those who have to manage the brand of their business, that they are aware of the potential repercussions.
These potential repercussions to remain mindful of might include the methods the individual who attempts to recover the debt uses, which may or may not include unsavoury recovery methods.
Whatever the might be, it is possible that the entity that purchases your debt may end up causing damage to your brand, and may turn people away from choosing your business again in the future.
The individual who owes you that initial debt might not ever become aware that you sold the debt, and that it is in fact another entity all together that is now pursuing your debt.
While not all debt buyers will act unconscionably, there is no way to know how the debt buyers, and their representative will act.
In light of this, it is important to ensure you are aware of and comfortable with the processes and methods that are used by the debt purchaser to collect the debt you are selling, in hopes of them not inflicting any damage.
Debt Collectors & Skip Tracing
For those who are seriously considering selling their debt to a debt purchaser, some legitimate methods that debt collection agencies use include Skip tracing.
Skip tracing is often used as a method to recover debt, and it typically involves when a debtor goes missing and evades all attempts at contact, skip tracing is the next step in the debt collection process.
This involves finding information on the debtor’s current whereabouts through online database searches, social media searches, and other investigation techniques.
No matter the reason for their disappearance, skip tracing helps ensure that those responsible for their obligations cannot avoid the consequences indefinitely.
As a result, it is an important aspect of any successful debt collection strategy.
This is one reputable and legitimate method of debt collection you as a debt seller can discuss with the debt purchaser to attempt to ensure that there is no damage to your brand.
Short-Term Gains -vs- Long Term Gains
There is a lot to assess when deciding whether to sell your debt off, versus hiring a debt collection agency.
With selling your debt, it is often a significant amount less than the initial amount, though this does depend on the company purchasing the debt.
Pros of Hiring a Debt Collection Agency
As a creditor, there are numerous advantages in engaging a debt collector to recover a delinquent debt rather than selling it to a debt buyer, including:
- Superior Debt Retrieval Rate - Debt collectors are often more adept in collecting debts than debt buyers and may have access to supplementary resources that can aid in debt recovery. Thus, using a debt collector may result in higher debt retrieval rates for the creditor.
- Control Retention - By utilising a debt collector, the creditor maintains control over the collection process, ensuring fair and ethical treatment of the debtor. This preserves the creditor's image and shields them from legal liabilities.
- Flexible Payment Arrangements - Debt collectors may be capable of liaising with the debtor to negotiate a feasible payment plan or settlement.
- Improved Customer Relationships - Involving a debt collector may preserve a good rapport with the debtor, as the debt collector acts as a mediator between the creditor and debtor, managing any tension or sentiments that may arise during the collection process.
- Legal Cost Evasion - Debt collectors may be able to resolve the debt without having to resort to legal proceedings. This enables the creditor to avoid the legal costs associated with pursuing the debt through the courts.
Debt collection agencies, particularly those that focus on digital debt recovery methods, can provide creditors of all kinds with long-term solutions for recovering their debt.
They can work with your existing consumer experience process and help you achieve your collection goals in a manner consistent with your brand.
Some debt buyers have in-house teams, while others use third-party collectors who are more involved in the consumer life cycle and general recovery process.
As the debt collection industry becomes increasingly digital, new tools are becoming available that offer improved regulatory compliance, better consumer experiences, and higher recovery rates compared to traditional phone-based collection methods.
With this in mind, there are certainly situations in which debt collection is a more commercial viable option for creditors looking to recover a debt.
Cons of Hiring a Debt Collection Agency
As a creditor, employing the services of a debt collector to recoup aged debts instead of selling them to a debt buyer may have some potential downsides, including:
- Expense - Compared to selling debts to a debt buyer, employing a debt collector could be pricier since the latter typically charges either a fee or a percentage of the recovered amount.
- Time - Collecting debts is an arduous and time-consuming task, and if done by a debt collector, it might take a more extended period to recuperate debts than selling them to debt buyers.
- Possibility of Legal Action - In situations where the debtor disputes or declines to pay the debt, debt collectors may have to take legal action to retrieve it. This could be costly and time-consuming for the creditor.
- Adverse Perception by Customers - When a creditor employs the services of a debt collector, it could lead to a detrimental relationship between the creditor and the debtor. Debtors may see the employment of debt collectors as confrontational or aggressive, which might hurt the creditor's image and result in future business loss.
Hiring a debt collection agency can add to the list of vendors a company works with.
However, managing debt is a common part of consumer interactions, and all creditors should have a strategy in place for collecting their unpaid invoices.
While some companies opt to establish their own in-house collection teams, training and maintaining such teams can be both time-consuming and costly.
There is also the commission price that will be deducted from your debt, and the amount of the commission price will depend upon the debt collection agency that you potentially hire.
To conclude, the best course of action for you depends upon the size of the debt, the prospects of its recovery, the amount offered by the debt purchaser, and the general nature of the finances of your company or business.
Contact our debt collectors today, and submit your debt online.
Advance debt collection is an Australia-wide commercial debt collection agency and credit and accounts receivable management. We can recovery your debts, conduct skip tracing, and manage your accounts receivable. We collect your debts for commission only. This means no collection, no commission. We are professional debt collectors with combined 20 years of experience to help you collect your debts. We are partnered with expert litigation lawyers with years of experience in debt recovery, enforcement, and insolvency. Under the Agents Financial Administration Act 2014 Advance Debt Collection Pty Ltd hold authority number 4583821 to act as a debt collector. ADC Advance Debt Collection® is a registered trademark.