Bringing back the cash into the system can be very hard, and to do so, the companies hire first-party collection agencies and third-party collection agencies to deal with bad debts. Moving further into the process of turning bad debts into clean ones, we will know “The Main Differences between the First and Third-Party Collections”.
Previously, bad debt was not an issue in the business world, so debt collection was usually left unattended. If, for any reason, a debt went bad, recovery was demanded based on the company’s DIY approach, or it was written off.
But now this is the case NO MORE! Debt collection is an important job for a company’s cash to be up and running. To do so, the companies have been establishing Accounts Receivables (AR) Departments dealing with bad debts and are obliged to recover their debts; otherwise, the business is restricted under a negative credit score list.
Debt collection can be a very exhausting process. So, there are two major ways a business can handle its debts without wasting time and money. There are two ways to collect debt.
- First-Party Collections
- Third-Party Collections
The creditors hire agencies to collect debts from their customers on their behalf. This way, debt collection is not an issue for the companies directly, and they can focus on their growth. The original creditor can also do first-party collections, but due to the tiring process, an agency is usually hired. The hired agency deals with the debtors on the company’s behalf without replacing their names.
Whereas third-party collections deal with bad debts in their own way. It is referred to as third-party because it is done by an organization not part of the contract. Third-party collections are done by purchasing the accounts with bad debts or by filing litigation against the debtor in demand for the unpaid amount.
The Main Differences between First and Third-Party Collections
- First-party collections are done by the creditor’s employees or by the hired agency on the original creditor’s behalf without changing the original creditor’s name. In contrast, third-party collections are done by the agencies who take total control of the creditor’s accounts that need recovery and even replace the creditor’s name.
- The first-party collections process is launched before the debt goes bad when the amount is not paid even after passing the due date. In comparison, third-party collections are sourced after the debt goes bad.
- First-party collections are usually done through phone calls, email, or sending out letters in the name of the debtor by the original creditor. However, the third-party groups are done through legal proceedings: by filing a suit or selling the debtors to the hired third-party collections agency.
- During the first part of collections, the retained amount is all kept by the original creditor, or a fixed amount is paid to the hired agency, in case you hire any agency. There are no hidden fees. On the other hand, third-party-collection agencies sign the contracts deciding upon any percentage or commission. A plus point in third-party collections is that you don’t have to pay until the agreed accounts are recovered.
1st priority “The Customers.”
- The first party has total control over the accounts, the tone of the conversation, and their clients. First-party collection agencies’ main priority is their customers. They want continued business and friendly relations with their clients. After all, a customer is the reason a business survives and thrives. Comparatively, third–party collection agencies only care about monetary recovery.
- First-party collections, as stated above, can be tiring and exhausting. But, the third-party collections can be a seamless and effortless experience with bearing fruit. As you dump all your tensions to the third party that works in the field professionally. The success rate is higher in third-party collections than in first-party collections. And the original creditor can focus on the company without worrying about the bad debts and the losses.
- The third-party collections can be more technologically and efficient as the third-party agencies have access to advanced software and better data. Technology makes the process a lot easier. The first-party agencies may not have access to these facilities.
Debt collection process
- First-party collections ensure the debt collection process is secure and confidential, as it is directly dealt with by the original creditor only, with no interference. And in third-party collections, the debtor might fear it is a scam and may not pay as third-party collectors do not deal with the original creditor’s name.
- Although both collections need legal and ethical standards to work by. The first-party collections do not require the necessary interference of special state/ country’s legal departments. But the third-party-collections must abide by unbreakable rules and regulations. It is done by the state/ country to protect the customer’s rights.
There are “The Main Differences between First and Third-Party Collections” based on control, access to data, money, and time consumed. And how both agencies operate. But their goal to recover the accounts is the same. So, select the best-suited way to recover your bad debts. Good Luck!
