If you are in the business of issuing credit cards, you assume an amount of financial risk, in that customers, if not careful, can run up large amounts of credit card balances. Inevitably, there will be instances when some of your customers will default on their credit card obligations. As a lending institution, you will need to have systems in place to collect the debt that is owed to you. If you do not then your business will suffer great financial losses. It is as simple as that.
There will be instances when the customers given credit card privileges will fail to pay the debts they owe. When this occurs, it is necessary to have in place a system of credit card debt collection.
Keep in mind, most people are responsible, and generally do not default on their credit card obligations. Often, there are external factors such as the loss of income, medical bills, or other calamitous circumstances that lead to the problem.
However, the credit card issuer must engage in some form of debt collection regardless of the individuals circumstances. This is because the issuer will need the revenues to maintain the health of the business as well as the proper relationship with those that do pay their debts.
This latter point requires an additional point of clarification. When a credit card client does not pay their debts, the money must be generated from another source. In many cases, it leads to raising interest rates on other card holders. This can deliver a short term fix to the problem, but it can also lead to your good customers refinancing with other card issuers. That will have a negative effect on your business and this is why it is critical to take part in proper credit card debt collection procedures.
As the name suggests, credit card debt collection involves the proper collection of past due monies owed in an effective manner that follows the letter of the law. While debt collection can be difficult, if your institution follows a few commonly established tools for success, you can greatly improve your ability to collect the money owed to you. Here are 3 common tips to enhance your success:
1. The first step to proper collections is to send a letter, called a demand letter, to the delinquent customer. This letter should explain the situation clearly, as well as list the exact amount that is past due. It should ask for prompt and full payment, while also informing the customer that they may present information that disputes the accuracy of the statements in the letter. Generally, these letters will provide a 30-day period for a response, as required by law. This is usually an adequate period of time to expect such a response.
2. If payment has not been made after this period, you should contact the customer by telephone within the 31-60 day time period. This call should ask for clarification as to why the debt is not satisfied. Then center on, and offer a repayment plan. If success hasn't been achieved during this period, the next time period, 61-90 days, should focus on sterner phone calls and letters informing the delinquent customer of the potential damage to their credit rating should the default continue.
3. If this does not solve the problem, the next step should involve hiring a professional credit card debt collection agency. Such agencies are well adapt at dealing with delinquent accounts and can take such responsibilities off the shoulders of your business. This will allow your business to allocate its resources to other areas besides the perpetual collection of delinquent accounts. Credit card debt collection is not always easy. Some account holders simply cannot or will not pay. However, if you take the proper steps to deal with the problem, you may discover these problems resolved in a more efficient manner than you thought possible.
It is very important to note that time is of the essence here. The sooner you can identify problem accounts, and outsource those at a reduced cost and time savings to those better equipped to handle them, the more money you'll recover sooner, and the more money and time you will save. The longer an account goes delinquent, you greatly diminish your likelihood of recovering any money.
There will be instances when the customers given credit card privileges will fail to pay the debts they owe. When this occurs, it is necessary to have in place a system of credit card debt collection.
Keep in mind, most people are responsible, and generally do not default on their credit card obligations. Often, there are external factors such as the loss of income, medical bills, or other calamitous circumstances that lead to the problem.
However, the credit card issuer must engage in some form of debt collection regardless of the individuals circumstances. This is because the issuer will need the revenues to maintain the health of the business as well as the proper relationship with those that do pay their debts.
This latter point requires an additional point of clarification. When a credit card client does not pay their debts, the money must be generated from another source. In many cases, it leads to raising interest rates on other card holders. This can deliver a short term fix to the problem, but it can also lead to your good customers refinancing with other card issuers. That will have a negative effect on your business and this is why it is critical to take part in proper credit card debt collection procedures.
As the name suggests, credit card debt collection involves the proper collection of past due monies owed in an effective manner that follows the letter of the law. While debt collection can be difficult, if your institution follows a few commonly established tools for success, you can greatly improve your ability to collect the money owed to you. Here are 3 common tips to enhance your success:
1. The first step to proper collections is to send a letter, called a demand letter, to the delinquent customer. This letter should explain the situation clearly, as well as list the exact amount that is past due. It should ask for prompt and full payment, while also informing the customer that they may present information that disputes the accuracy of the statements in the letter. Generally, these letters will provide a 30-day period for a response, as required by law. This is usually an adequate period of time to expect such a response.
2. If payment has not been made after this period, you should contact the customer by telephone within the 31-60 day time period. This call should ask for clarification as to why the debt is not satisfied. Then center on, and offer a repayment plan. If success hasn't been achieved during this period, the next time period, 61-90 days, should focus on sterner phone calls and letters informing the delinquent customer of the potential damage to their credit rating should the default continue.
3. If this does not solve the problem, the next step should involve hiring a professional credit card debt collection agency. Such agencies are well adapt at dealing with delinquent accounts and can take such responsibilities off the shoulders of your business. This will allow your business to allocate its resources to other areas besides the perpetual collection of delinquent accounts. Credit card debt collection is not always easy. Some account holders simply cannot or will not pay. However, if you take the proper steps to deal with the problem, you may discover these problems resolved in a more efficient manner than you thought possible.
It is very important to note that time is of the essence here. The sooner you can identify problem accounts, and outsource those at a reduced cost and time savings to those better equipped to handle them, the more money you'll recover sooner, and the more money and time you will save. The longer an account goes delinquent, you greatly diminish your likelihood of recovering any money.
About the Author:
David P. Montana has been a renowned industry expert, business consultant and author in business debt collection services for three decades. He provides more tools and information on credit card debt collection.
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