What is debt collection?

What is debt collection? - General

The term "debt collection" refers to the commercial recovery or collection of due receivables, for example an outstanding invoice. Debt collection is a part of debtor management. This also includes accounts receivable and the dunning process. Many companies outsource debt collection. Law firms or specialised collection agencies are appointed for this.

As with many outsourcing transactions, the reasons for this are saved costs and the special skills of the service provider. Effective debt collection requires special knowledge and skills. Furthermore, the company does not have to allocate staff for collection activities and has fewer overheads. Professional debt collection usually takes place in writing. The tone always remains polite and respectful. The aim of debt collection is to ensure that justified receivables are settled. The debtor should therefore pay an invoice for a service actually rendered by the company.


What is debt collection? - Legitimate collection agencies

Legitimate collection agencies help companies to collect money for services rendered. A feature of a legitimate collection agency is the affiliation with larger associations such as the Bundesverband Deutscher Inkasso-Unternehmen e.V. (BDIU). BDIU members commit to diligent adherence to rules of professional practice and are subject to strict monitoring by the association. The BDIU can initiate various sanctions in the event of violations.


What is debt collection? - Procedure

If, in spite of dunning, a debtor does not respond to a company's outstanding receivables and does not meet his payment obligation, it becomes a collection case. If the creditor then appoints a collection agency, this agency will first do a verification. This is followed by a written dunning letter to the defaulting payer. The debtor then has the opportunity to raise an objection to the receivable, if necessary. If the debtor continues to refuse payment, the right to a legal default notice and enforcement orders, respectively, will materialize. Furthermore, there is the possibility of compulsory enforcement by the bailiff or-as a next step- the distraint of recoverable property. If the debtor declares a willingness to pay his debts, the collection agency may agree to instalments, extensions and settlement agreements with the debtor.

In addition to the invoice amount and dunning costs, the consumer must settle the costs incurred for the collection order, as well as the costs of the further recovery process. The amount of the collection costs to be reimbursed is regulated in § 4 para. 5 Introductory Act to the Legal Services Act (RDGEG).


What is debt collection? - Legal basis

Debt collection agencies in Germany may only act as such if they meet the registration requirements of the Legal Services Act (RDG). Since the introduction of the RDG on July 1, 2018, collection agencies have been allowed to independently apply for default notices and enforcement orders, as well as other enforcement measures. If a company appoints a collection agency to collect receivables, all further correspondence will be exclusively processed by the service provider. The outstanding payments must then be made to the bank account of the collection agency.


What is debt collection? - Mediator between creditor and debtor

The aim of a collection agency is to reach an agreement between the creditor and debtor. The main advantages for the creditor are the ability to handover the due receivables to a professional company, which allows the creditor to concentrate on its day-to-day business. In addition, the handover of the debt should prevent payment default that would otherwise lead to increased costs for all customers. More information about debt collection is available at inkassoportal.de.

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