How to Send Someone to Collections

Sending an account to collections can be challenging for businesses, law firms, and credit institutions. Understanding when and how to escalate unpaid debts is crucial for maintaining financial stability and ensuring compliance with legal standards.

As of the third quarter of 2024, U.S. consumers owed a staggering $17.57 trillion in total debt, a 2.4% increase from the previous year. This substantial debt burden highlights the challenges creditors face in securing timely payments. Approximately 28% of Americans have at least one debt in collections, showing how widespread delinquent accounts have become. Debt collection cases now make up a significant portion of civil court dockets. 

Recovering unpaid debts involves complex legal considerations, leading many organizations to seek professional debt collection services. The debt collection industry has grown significantly, reaching a market size of $18.8 billion in 2022. This growth reflects the increasing reliance on specialized services to recover delinquent accounts efficiently.

Sending a debtor to collections requires careful planning, adherence to legal requirements, and clear communication. In this blog, we'll walk through the essential steps to ensure your organization follows the process effectively while staying compliant with industry regulations.

What Does It Mean to Send Someone to Collections?

Sending someone to collections means transferring an unpaid debt to a third-party collection agency specialising in recovering overdue payments. This step is taken when a debtor has failed to meet payment deadlines despite multiple reminders. Once a debt enters collections, the agency takes over communication with the debtor and uses various strategies to secure payment. The collection process can range from sending demand letters and making phone calls to negotiating settlements or, in some cases, pursuing legal action.

Why Businesses, Law Firms, and Creditors Escalate Debts

Businesses, law firms, and creditors escalate debts to collections for several reasons, including:

• Long-overdue payments: A debtor consistently fails to make payments despite repeated follow-ups.
• Broken payment agreements: If a debtor agrees to a repayment plan but does not follow through.
• Lack of response: A debtor ignores invoices, reminders, and direct communication efforts.
• High outstanding balances: Larger debts are more likely to be sent to collections due to their impact on cash flow.
• Disputed debts: If a customer refuses to pay and disputes the debt's validity without reasonable justification.

Importance of Following Legal Procedures to Avoid Compliance Issues

Debt collection is highly regulated, and failing to follow legal procedures can result in serious consequences, including lawsuits, fines, and reputational damage. Regulations such as the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA) protect consumers from abusive or deceptive collection practices. Businesses must ensure they:

• Send proper written notices before escalating debts.
• Avoid harassment or misleading communication.
• Provide accurate documentation to support the debt claim.
• Comply with state and federal regulations governing debt collection practices.

Once you've determined that debt needs to be escalated, following a structured approach ensures a smooth and compliant collections process. From verifying the debt to selecting the right agency, each step is crucial in maximizing recovery while adhering to legal guidelines.

Steps to Send Someone to Collections

Understand the debt collection process to ensure compliance and maximize recovery. Follow these key steps to escalate overdue accounts.

Step1: Verify the Debt

Before initiating the collections process, confirming that the debt is valid, well-documented, and still legally enforceable is essential. Verify the following:

• The debt is within the statute of limitations for collection in the applicable state.
• Detailed payment history shows outstanding balances and any prior attempts to collect.
• Any contractual agreements or invoices support the debt's legitimacy.

Maintaining accurate records strengthens your case and ensures compliance with debt collection regulations.

Step2: Notify the Debtor

Communication is key before escalating a debt to collections. Send a final demand letter outlining the following:

• The total amount owed and the due date for payment.
• A clear statement that the debt will be sent to collections if not resolved.
• Any legal disclosures required by federal or state laws.

Under laws like the Fair Debt Collection Practices Act (FDCPA) and state-specific regulations, businesses must provide debtors with sufficient notice before taking further action.

Step 3: Choose the Right Collection Agency

Not all collection agencies operate the same way. When selecting a partner, consider:

• Industry experience and track record of successful recoveries.
• Compliance with FDCPA and other consumer protection laws.
• Fee structures, including contingency-based or flat-rate pricing.
• Reputation and ethical collection practices to avoid legal risks.

Additionally, businesses can choose between:

• Third-party collection agencies that act on their behalf to recover debts.
• Debt buyers who purchase delinquent accounts and assume collection responsibility.

Step 4: Provide Necessary Documentation

Supplying proper documentation allows an agency to proceed effectively once an agency is selected. Required documents typically include:

• A statement of account detailing past payments and outstanding balances.
• Copies of the contract, invoice, or agreement proving the debtor’s obligation.
• Any previous correspondence showing prior collection attempts.

Providing complete and accurate records ensures the agency can legally pursue the debt while complying with FDCPA and other regulatory guidelines.

Step 5: Monitor Collection Efforts

Even after outsourcing the debt, it’s essential to stay involved. Regularly check in with the collection agency to:

• Review debtor responses and any payment arrangements made.
• Ensure compliance with legal standards to avoid liability.
• Evaluate performance, including recovery rates and resolution times.

Maintaining oversight ensures the debt collection process remains effective and aligns with your business's best interests.

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Debt collection also involves strict legal obligations. Understanding key regulations can help businesses and law firms avoid penalties while ensuring fair treatment for all parties involved.

Legal Considerations in Debt Collection

Understanding the following laws will help businesses and law firms stay compliant while effectively recovering outstanding debts.

1. Fair Debt Collection Practices Act (FDCPA)

The FDCPA (15 U.S.C. §§ 1692–1692p) sets guidelines for third-party debt collectors. Key sections include:

• § 1692b – Restricts communication with third parties to protect debtor privacy.
• § 1692c – Limits when and how debt collectors can contact consumers.
• § 1692d – Prohibits harassment, abuse, or oppressive tactics.
• § 1692e – Bans false, deceptive, or misleading representations in debt collection.
• § 1692f – Forbids unfair practices, such as adding unauthorized charges.
• § 1692g – Requires collectors to provide debt validation upon request.

2. Fair Credit Reporting Act (FCRA)

The FCRA (15 U.S.C. §§ 1681–1681x) ensures accurate reporting of debt-related information to credit bureaus. Important sections include:

• § 1681c – Limits how long negative information (e.g., late payments, collections) can remain on credit reports (typically seven years).
• § 1681s-2 – Requires creditors and collectors to report only accurate debt information and correct errors.

3. Telephone Consumer Protection Act (TCPA)

The TCPA (47 U.S.C. § 227) regulates debt collection calls and text messages. Key provisions include:

• Restrictions on using auto-dialers and pre-recorded messages without debtor consent.
• Guidelines on calling times and frequency to prevent harassment.

4. State-Specific Collection Laws

Many states impose additional rules beyond federal laws. Some examples include:

• California’s Rosenthal Fair Debt Collection Practices Act (Cal. Civ. Code §§ 1788-1788.33) – Expands FDCPA protections to include original creditors.
• New York’s Debt Collection Regulations (23 NYCRR 1) – Requires enhanced disclosures and limits on communication frequency.

Effective debt collection goes beyond simply following legal requirements. Implementing best practices can improve recovery rates, reduce disputes, and maintain professional relationships with debtors.

Best Practices for Managing Debt Collection

Handling debt collection effectively requires a strategic approach that balances compliance, transparency, and professionalism. 

1. Keeping Detailed Records and Communication Logs

Accurate documentation is crucial for both compliance and dispute resolution.

• Maintain Comprehensive Records – Keep track of all payment histories, outstanding balances, and prior collection attempts.
• Document Every Interaction – Log all communications with debtors, including emails, phone calls, and letters, to provide a clear record of efforts.
• Store Signed Agreements – Keep contracts, loan agreements, or service terms to validate the legitimacy of the debt.

2. Ensuring Transparency and Ethical Collection Practices

Following ethical guidelines protects your business from legal trouble and fosters professionalism.

• Communicate Clearly and Respectfully – Use straightforward language in payment reminders and debt discussions.
• Provide Debt Validation – If a debtor disputes a charge, be ready to supply supporting documentation to confirm the debt.
• Avoid Harassment or Misrepresentation – Adhere to legal restrictions on communication frequency and ensure all statements are truthful.

3. Working with Legal Counsel for Complex Cases

Legal professionals can offer guidance when dealing with disputed debts or aggressive debtors.

• Review Compliance with Laws – Attorneys can ensure collection actions align with the Fair Debt Collection Practices Act (FDCPA) and other regulations.
• Assess Legal Options – Legal counsel can help determine if litigation is the best course of action for high-value or highly contested debts.
• Ensure Proper Documentation for Court Cases – Having legally sound records strengthens your position if a case escalates to legal proceedings.

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Not every overdue debt needs to go to a collection agency. Exploring alternative solutions can lead to faster resolutions while preserving customer relationships and reducing collection costs.

Alternatives to Sending Someone to Collections

Before escalating a debt to a collection agency, businesses and law firms can explore alternative approaches that may resolve outstanding balances while maintaining customer relationships.

1. Negotiating Payment Plans or Settlements

Rather than immediately involving a third-party collector, working directly with the debtor can lead to a faster and more amicable resolution.

• Flexible Payment Plans – Offering structured payment schedules allows debtors to pay in installments, reducing financial strain while ensuring creditors recover owed amounts.
• Settlement Agreements – Creditors can propose a lump-sum payment at a reduced rate, incentivizing debtors to clear their balances quickly.
• Temporary Hardship Modifications – If a debtor faces financial difficulties, adjusting payment terms for a limited period can increase the likelihood of repayment.

2. Offering Discounts for Early Payment

Encouraging early payment through discounts can be a cost-effective alternative to collections.

• Early Settlement Discounts – If paid by a set deadline, a slight reduction in the total balance can motivate debtors to resolve their accounts.
• Interest or Late Fee Waivers – Removing accumulated late fees or interest penalties may encourage prompt payment without collecting intervention.

3. Mediation or Legal Action Before Engaging a Collection Agency

In cases where direct negotiation fails, other legal avenues may help recover debts before resorting to a collection agency.

• Mediation Services – Engaging a neutral third party to facilitate discussions can lead to mutually acceptable payment solutions.
• Legal Demand Letters – Sending a formal demand letter from a law firm can emphasize the seriousness of the situation and prompt payment.
• Small Claims Court – Businesses may pursue recovery through small claims court rather than hiring a collection agency for smaller debts.

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Conclusion

Sending a debt to collections requires careful steps, from verifying the debt and notifying the debtor to choose the right collection agency. Following legal guidelines and ethical practices ensures a smooth and compliant process. The right approach can make all the difference in recovering debts efficiently while maintaining professionalism.

If you're looking for a smarter way to manage debt collection, Tratta offers innovative solutions to streamline the process. Book a demo today and see how Tratta can help you recover debts efficiently while staying compliant.