Credit collection refers to the general debt recovery process of reimbursing unpaid and past-due credit

loans from the consumer in debt, on behalf of the lender. Such process is normally performed by
specialised DRAs (Debt Recovery Agencies), which act on lender’s behalf in exchange of an interest,
which is to be requested from the creditor or from the debtor, depending on the collection agency’s
terms and policy. Debt collection is directly connected to the definition for “credit” and “credit loan”. It
generalises the procedure of granting a monetary loan to a consumer with a written reservation that the
sum will be restored by the consumer (an individual or a business organisation) before an alluded
deadline has passed. Debt recovery proceedings typically include tracing services, pre-legal phone calls,
emails and letters; legal proceedings with the usage of special debt recovery solicitors in compliance
with country and international government approved laws; and court process, involving small claims
court procedures, wage garnishment, seizure of belongings or property, etc.

Credit collection- connotation

As positive cash flow is vital for a business, so is the debt recovery. If this operation is performed
successfully, it will automatically generate positive cash flow and income in creditor’s financial system. A
credit collection is preceded by a legal credit contract, serving as a law agreement between a first party
(a creditor/lender) and a second party (a consumer). When the consumer falls behind with his
payments, which are to be made on an agreed date, he becomes a debtor and the monetary credit
amount is considered as a bad debt or a past-due late payment. Such payment falls under the definition
“late”, when 30-60 days have passed. Usually the deadline is 30 days, but it can vary, depending on
creditor’s policy. When there is a past-due payment on lender’s list, this is marked as a financial loss for
creditor’s organisation and the debt will be written-off and transferred to a professional debt recovery
agency.

Typically most creditors will try to begin a debt recovery on their own, with their private financial
recourses. If the recovery is not successful, they usually hire a DCA (Debt Collection Agency) and assign
the debt recovery process to private recovery agents. These agents use standardised methods and
schemes for debt recovery as: pre-legal actions, preceded by tracing and tracking the debtor; legal
process after the pre-legal operation; the following court actions; and continual monitoring. The last
service is also considered as part of the credit collections, although it is not an active process.
Monitoring is vital for corporations, as this function provides the necessary scoring of past and future
debtors and measuring the possibility of new past-due payments occurrence. This process of supervision
is done internally and externally as well. This means that although the creditor can carry out a
monitoring within his company, using his employees; a debt recovery agency can also perform such
service. It is vital also for companies, which offer commercial loans, as the scoring is very important for
creditor’s future business partners and corporate borrowers.

Credit collections management

The credit collection process can also enlist a restructuring of the debt plan if the debtor is unable to
cover the default payments’ requirements. In such case the subject of debt can use the so-called debt
collections management. This service is provided by the creditor (if there is such department in his
company); by a debt recovery agency; or by a private debt management company, which specialises
only in carrying out specific and individual debt management plans for indebted subjects.

A debt recovery management carries out different debt management plans (DMPs). A DMP represents
an unofficial agreement between the creditor and the indebted subject. It is based on a regular payment
(most often- monthly), which the debtor is able to afford. A debt management plan is usually offered to
consumers in debt, which are not in a stable financial state and cannot pay the amounts on time. The
aim of such credit collection management is to help debtors gain control over their outcome without the
need of further falling into debt. Another positive feature of debt recovery management plans is that
when the creditor agrees to such option, further interest and fees, applicable for the debtor, are to be
frozen.

When a credit collections management plan contract is to be signed, a debtor has three options for
payment, depending on who offers the debt management agreement. If the creditor has his own debt
recovery management department, the debtor will have to pay directly to the debtor. If a DCA provides
debt management services, the subject of debt will make monthly payments to the agency, which will
deduct its interest and transfer the rest to the lender. If such services are provided directly by a
specialised Debt Management Organisation (DMO), then the debtor will transfer the payments to the
DMO, along with its commission fees and the management company will forward the rest of the amount
to the creditor.

Used literature & external links

http://wiki.answers.com/Q/What_is_credit_collection

http://www.ehow.com/info_8195853_definition-credit-collections.html

http://www.nolo.com/legal-encyclopedia/collection-agencies

http://de.slideshare.net/e2btek/what-is-credit-collections-management

http://www.bankrate.com/finance/debt/what-is-debt-management.aspx