Things Your Business Needs To Know About First Party Collections
If you’re a business owner or departmental manager who does any kind of collections activities, you’re already pursuing first party collections, though you may not have known it. First party collections means precisely that: attempting to collect on debt for your own company instead of sending your accounts to a third party agency. Any time you make a call asking to remit payment or send a past due notice you’re engaging in the practice of first party collections.
The name “first party collections” means that the entity collecting (or an affiliate was a party to the original transaction. The debtor is referred to as “second party,” and “third party” means another entity that gets involved in the attempts at collection, like a debt collection agency.
Third party collections are different from first party collections in a few ways. For one thing, there’s a lag in time from when a bill becomes past due to when a third party collector starts collecting, simply due to the exchange of files. Another difference is that third party collectors don′t have a personal relationship with the debtors, so they may not be cognizant of the need to remain on pleasant terms with them in the hopes of getting future business.
Often the debtor will be more inclined to try to please their original creditor, especially if you have a product or service that he or she needs in order to maintain their business. Sometimes a gentle reminder that you won′t ship any more items until their past due amount is cleared up is enough to get recalcitrant debtors to pay.
Another difference is that unlike third party agencies, first party collections do not fall under the Fair Debt Collection Practices Act. When you are the original party or a legal affiliate of it like a subsidiary, you are considered a lender rather than a collector. Third party agencies therefore do not have as much wiggle room in their practices as first party collections entities due, but the latter are still subject to state and federal law.
Most companies handle their own collections for a period of ninety days to six months. Ideally, when the 2-3 month mark comes up and collections efforts aren′t working, it’s common practice for companies to turn over these accounts to a third party agency or “sell” the debt to them, which means the agency pays for the right to keep whatever return they get on the debt.
First party collections are best handled by people or a staff dedicated entirely to collections. Having other members of the staff like your sales force or accounting department is not a good idea. They won′t have the skills, time or motivation to successfully pursue collections as well as collections professionals will.
First party collections done by a dedicated staff is just a more efficient way of handling it. They can take continuing education on collections techniques and perform more collections tasks such as finding people using private investigation, working out creative payment arrangements or disguising collections as audits. First party collections that are operated like third party collections agencies are the most successful.
David P. Montana has published extensively and served as a corporate advisor in collection agency services for three decades. David offers more helpful tools and resources about outsource billing service solutions.
