First Party Collections Information Important To Your Business\’ Cash Flow
Any business owner or manager who has ever made a collections call has done first party collections, whether they realize it or not. First party collections means collecting on your own accounts, so any request for payment by phone, letter or in person qualifies as first party collections.
You\’re considered the \”first party\” because you were involved in the original transaction, while the debtor is known as the \”second party.\” A \”third party\” doesn\’t enter into it unless you hire a separate debt collection agency.
First party collections activity has some unique advantages. For one thing, there is no lag in time between an account becoming delinquent and the beginning of the collections process. Also, you have knowledge of your customers\’ needs and practices, making it easy to maintain a positive relationship even after debt is incurred, which helps down the road if you want to keep the customer as a client.
First party collections attempts are often seen as friendlier or more understanding than activity from third party collections agencies. Your client may rely on your service or product for his business to run, and if so he will be just as amenable to staying on good terms as you are.
In addition, first party collections are not governed by the Fair Debt Collection act, believe it or not. This is because under the law the first party or its subsidiary is considered the lender rather than a collector and it means you can do some things that a third party debt collector can\’t by law. There are still state and federal laws that apply, though, so make sure you are familiar with all applicable regulations if you go this route.
The rule of thumb for first party collections no matter what the industry is to keep trying to collect for 2-3 months. When you reach that milestone and haven\’t yet collected, it\’s typically a good idea to engage an outside agency or sell the debt, which means someone pays you up front for the right to collect on the debts.
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 written widely and served as a business advisor in collection agency services for thirty years. David gives more helpful tips and resources about outsource billing service solutions.
