First Party Collections: Important Information For Your Business

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A Primer on 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. It simply means that you're 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 first party collections.

Some Distinctions

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 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.

Third party collections agencies can sometimes be seen as hostile, while if your clients need your product or service to keep his or her business running smoothly, they will strive to stay on your good side. Sometimes just hearing a familiar voice asking nicely for payment is enough to solve the problem.

Another advantage is one that surprises most people—under first party collections you are not subject to the Fair Debt Collection Practices Act. Whether you’re the original lender or a subsidiary of it (some large companies operate their own collections agencies as subsidiaries for just this reason), you’re not considered a collector by law, which adds some flexibility to your debt collection. However, you must still abide by applicable state and federal laws.

When To Outsource To Third Party Debt Collection

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.

The most successful first party efforts are done by dedicated collections professionals. Sales people, accounting staff and business owners just aren’t as capable at collections because their attentions are scattered and collections is one of the least pleasant tasks they have to do.

Learn some of the advantages, and why you should hire an outsource billing service to handle all your billing AND collections.

Instead, if you’re insistent on first party collections, hire someone whose sole job is to do that, or if you’re large enough to support it, consider having a collections department or subsidiary. Dedicated collections professionals will know the best collection techniques, including how to find deadbeats, negotiating settlements or payment plans, and even disguising collections activity as audits. First party collections can be effective if you structure it the way a third party agency would.

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