Every lending business needs to have some debt collection capability. This is because some of the people who borrow money will inevitably fail to repay on time. In fact, some of the people who borrow money will simply vanish, with no hope of them ever repaying their loans willingly. They therefore have to be compelled to repay. And that is where the need for debt collection capabilities comes in.
There are two ways in which a lending business can deal with the debt collection challenge:
The first option is where the lending business can create an in-house debt collection department. So this is where you hire folks who know how to go about the debt collection work. You can then pay them a salary or you can pay them on commission basis.
The second option is where the lending business can outsource the debt collection work. Debt collection work tends to be ‘dirty’ and ‘messy’ – hence the decision by many lending businesses to outsource it.
Before engaging debt collectors, it is important to first pursue all avenues for amicable solutions to the debt problems. In other words, it is important to first give the borrower time to repay the loan without coercion. It is only when it proves totally impossible to recover the loan amicably that the need for aggressive debt collection arises.
Therefore before sending debt collectors to a client, you need to call the client severally and request him to repay the loan amicably. You actually need to have a dedicated phone line through which you can be calling clients with requests for them to repay loans amicably. True, you will incur phone bills calling up such clients and trying to get them to repay their loans amicably. Like if, for instance, you are using a Metro PCS line, you will have to set aside some funds for metropcs bill pay expenses. So there is a cost to be catered for here. Yet you can’t compared the metropcs bill payment you will have to make with the cost you’d otherwise have to incur, if you were to use coercive measures to recover the debt. And that applies whether you are lending to individuals or to small scale traders.