You Can Improve Your Credit Card Debt Collection Efforts With These 3 Steps
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by: DavidP.Montana
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If you are in the business of issuing credit cards, you assume an amount of financial risk, in that customers, if not careful, can run up large amounts of credit card balances. Inevitably, there will be instances when some of your customers will default on their credit card obligations. As a lending institution, you will need to have systems in place to collect the debt that is owed to you. If you do not then your business will suffer great financial losses. It is as simple as that.
There will be times when the people you issue credit cards to will not pay back the debt that they owe. At this point, it becomes necessary to engage in credit card debt collection.
Granted, most people tend to be responsible, and they generally do not default on their credit card responsibilities. Often, there are extenuating circumstances, such as the loss of a job, medical expenses, or other unforeseen circumstances that lead to the problem.
In spite of that, the credit card granter must employ some means of debt collection regardless of the individual's circumstances. This is important, because the card issuer needs the revenues to maintain the health of the business, as well as keeping a positive relationship with the customers who do pay their debts.
This latter point requires an additional point of clarification. When a credit card client does not pay their debts, the money must be generated from another source. In many cases, it leads to raising interest rates on other card holders. This can deliver a short term fix to the problem, but it can also lead to your good customers refinancing with other card issuers. That will have a negative effect on your business and this is why it is critical to take part in proper credit card debt collection procedures.
As the name suggests, credit card debt collection involves the proper collection of past due monies owed in an effective manner that follows the letter of the law. While debt collection can be difficult, if your institution follows a few commonly established tools for success, you can greatly improve your ability to collect the money owed to you. Here are 3 common tips to enhance your success:
1. The first step for engaging in proper collections is to send a letter to the delinquent account holder. The letter should explain the situation in a clear manner and state the exact amount that is overdue. The letter should request prompt payment while also informing the recipient that they may present any information that disputes the statements in the letter. Generally, such letters will provide a 30-day window for a response, as required by law, and since this will usually be an adequate duration for such a response.
2. If payment has not been offered after this period, you need to contact the customer by telephone within the 31-60 day time window. This call needs to ask for clarification why the debt hasn't been paid. Then focus on, and offer a repayment plan. If success is still not effected during this period, the next 61-90 days should focus on sterner phone calls and letters letting the debtor know of the potential damage to their credit rating in the event of a default.
3. If this doesn't satisfy the problem, the next important step is hiring a third party credit card debt collection agency. These agencies are well experienced at dealing with delinquent credit card accounts and can take these responsibilities off of your business' hands. This allows you to focus your attention on your core business activities. Credit card debt collection is not easy. Some delinquent customers cannot pay for reasons already discussed; others simply will not. However, if you take the proper action to handle the problem, you will find these problems better resolved in a more efficient manner.
It's very important to mention that time is a crucial factor here. The earlier you can identify problem accounts, and outsource them at a reduced cost and time savings to those with better experience at handling them, the more money you will recoup sooner, and the more time and money you will save in the long run. The longer an account goes delinquent, the likelihood of recovering any money is reduced greatly.
About the Author
David P. Montana has been a prominent industry expert, business consultant and writer in business debt collection services for thirty years. He provides additional tools and resources on credit card debt collection.
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