Debt collection is as old as man and is bedevilled by all kinds of inhuman practices – threats, terror, ritual, thuggery etc – which made the profession so ignoble and unattractive to professional-minded career seekers.
In the event of improvement in human civilisation and developments in human business transactions, it is also important to approach debt collection in a way that makes it a profession and as such necessitate the mastery of the art involved. This actually led to the development of a curriculum in debt collection/recovery practices with some guiding rules.
Debt collection and debt recovery appear to be synonyms but there is a thin line of divide between them. Debt collection involves all measures employed to get the money owed to a creditor by a late-paying borrower. In most cases, when a debt is still at the lay payment stage, the creditors manage it themselves.
Debt recovery, on the other hand, is the pursuit and collection of a debt after it has been written off in the creditor’s accounts. As such, such monies are no longer part of the creditor’s account receivables, but that doesn’t necessarily mean that the creditor has forfeited the money. In my next article, I will be explaining in detail what it implies when a debt is said to be written off.
Debt recovery involves aged debts which the creditor could not make headway in its collection. The emphasis in debt collection is to get back the sum of what is owed that has not been paid, while the emphasis in debt recovery is to collect the sum owed and also maintain the relationship between the creditor and the debtor. The ultimate aim of debt recovery is to collect what is owed, as well as restore the stale relationship between the creditor and the debtor.
The difference between debt collection and debt recovery also necessitates the difference in the approach employed in ensuring that what is owed is collected. A debt collection agent is one who goes after money owed an organisation or individual by a debtor who has accepted indebtedness to the sum in question but has delayed in fulfilling the contractual agreement – payment obligations.
Beyond debt collection
The debt collector’s interest is in the sum being owed and nothing else. In most cases, he pays little or no attention to managing the relationship between the creditor and the debtor. His approach to debt collection is more like that of the tax masters. In most cases also, they do not understudy the given brief thoroughly before swinging into action. For the debt collector, what constitutes the brief may be the statement of indebtedness from the creditor and nothing more.
The debt recovery agent however is one that goes after the money owed by a debtor who may not have accepted indebtedness, may have been at large, may have given some excuses as to why the payment has not been made, or who may be having some financial difficulty. Thus, the debt recovery agent meets two types of debtors – the “I will not pay” and the “I cannot pay” debtors.
As earlier noted, a debt recovery agent doesn’t only have his eyes on the sum due which has not been collected but also on ensuring that the relationship of the creditor and the debtor is restored. In most cases, the amount being owed is disputed and the debt recovery agent will have to go back and forth with the analysis of account statements, analysing every detail of the transactions until the grey areas are revealed and reconciled. In some other cases, he will have to deal with fixing the error caused by the approach the creditor employed earlier in an effort to recover the debt.
For the debt recovery agent, no debt recovery brief is complete until the debtor has told his own side of the debt story. Also, if he ends up collecting the money without restoring the stalled relationship between the creditor and the debtor, his job is half executed.
While the debt collection agent goes for the money owed, picks it up, drops it with the creditor and walks after pocketing his commission, the debt recovery agent pays attention to all details both from the creditor and the debtor. He goes back and forth, vacillating between the creditor and the debtor until both come to a mutual understanding regarding the debt. His collection starts at that point when the debtor makes the payment “willingly”.
Unlike the debt collection agent, the debt recovery agent also analyses the entire situation and advises the creditor on proactive steps to take to forestall future occurrence of bad debt. The debt recovery agent is relationship-minded and produces better results for business organisations on the long run.
In most cases also, because the debt recovery agent is dealing with a debt which the organisation doesn’t consider to be part of its cash flow anymore, he suffers some delays and sometimes non-responsiveness from the personnel of the organisation that should be feeding him with information.
At some point, if the claims of the debtor become so difficult for the creditor to refute, due to inappropriate record keepings, the organisation may abandon the debt recovery agent with such statement as, “We will look into our records and get back to you”. And in most cases that becomes the end of that debt chasing exercise. At this point, it becomes obvious that the creditor doesn’t have the appropriate records to refute the debtor claims.
This is a common occurrence in the Nigerian pharmaceutical industry. When it gets to this point, the debt recovery agent is caught at a standstill without getting paid for all the efforts he has put in so far simply because there was no collection.
As a debt recovery agent, it is very important that you evaluate the brief appropriately to have a good understanding of what you are up against because it is a common experience for “the hunter to be hunted” (the creditor becomes the debtor) in the game of debt chasing. Once it gets to that stage, the creditor goes silent under the guise that he will cross-check things and get back to the debt recovery agent.
This jungle scene of the hunter being hunted is prevalent in the pharmaceutical industry also because the prospective debtors (sales representatives or serviced customers) know where the loopholes are in operational system of the company. Thus, when approached by the debt collection /recovery agent, they hem their web of claims around the loophole to form an intricate maze which the organization cannot spare the resources of time to unravel. The result is a debtor who claims that the creditor is indebted to him because the creditor cannot refute his claims.
While the debt collection agent gets duly paid for his collection job, the debt recovery agent is always underpaid for the immeasurable ways he contributes to the growth of a business. For me, any debt recovery effort that jeopardises the relationship between the debtor and the creditor did not achieve its aim in totality.
So, as a creditor, choose which to engage. If you value the money and the relationship with the debtor, engage the debt recovery agent but if you value only the money, you may engage the debt collection agent.
Next time, if you think continuity of your business, if you are thinking long term, if you need proactive approach to bad debt occurrence, engage a debt recovery agent not a mere debt collection agent. Debt recovery agents are better referred to as debt recovery consultants.
By Frederick Ezenwa Ibeako