FAQ’s About Collection Letters

Answers to Your Collection Letter Questions


Is this your first time considering outside collections?  No worries, we’ve got you. If your questions aren’t answered here, call me at 800-201-CA$H (2274) my extension is 110 and I’m happy to take your call. Vienna

FAQ’s About First Party or In-House Collection Letters

What is a 1st Party Collection Letter?

The Short Answer: A first party or In-House collection letter is one you send from within your company.  You are the first party. 

The Long Answer: A first-party collection letter is a written communication sent by a creditor or a company to a debtor who owes money. This letter is typically the initial step in the debt collection process and serves to remind the customer of their outstanding debt and to request payment.

First-party collection letters usually include details such as the amount owed, the due date of the debt, any interest or fees accrued, and instructions on how to make payment. They are intended to prompt your customer to take action to resolve the debt, either by paying in full or by contacting the creditor to discuss repayment options.

These letters are called “first-party” because they are sent directly from you, the creditor or the company owed money, as opposed to being sent by a third-party debt collection agency. The tone of the letter is typically firm but professional, aiming to encourage cooperation from the customer while also informing them of the consequences of not resolving the debt.

Why Would I Send a First Party or In-House Collection Letter?

There are several good reasons to send an in-house collection letter before turning to a third-party collector.  Including but not limited to:

  1. Maintaining good customer relations: By sending a personalized collection in-house letter, you have the opportunity to maintain a positive relationship with the customer before escalating the collection process.
  2. Cost-effectiveness: Handling collections internally can be more cost-effective than outsourcing to a third-party agency.
  3. Flexibility and control: Managing collections in-house gives you more flexibility and control over the process, allowing you to tailor your approach based on individual customer circumstances.
  4. Timely communication: Communicate promptly with customers regarding outstanding invoices to head off issues before they get out of hand.

Overall, using in-house or 1st party collection letters can help businesses collect outstanding invoices while preserving customer relationships and maintaining control over the process.

When Should I Send a 1st Party Collection Letter?

It depends on your companies collection policy so you should consult your company manual but we recommend starting friendly collection activity such as email reminders and phone calls at 10 to 15 days beyond terms. You should send an In-House letter if your customer doesn’t reply to your email inquiries or refuses to take your collection calls and before you send a 3rd party or debt collection letter.

How many 1st party letters should I send?

The short answer: One to three. If your customer hasn’t taken your calls or responded to three written requests for payment you have a problem.

The long answer: The number of first-party collection letters you should send depends on several factors, including the terms of the debt agreement, your company’s policies, and the effectiveness of your communication strategy. Here are some general guidelines:

  1. Initial Letter: Typically, you would start with one first-party collection letter after your customer has ignored your email inquiries and phone calls. This letter serves to ensure your customer is aware of the problem and should include your contact information and a means to resolve the invoice.
  2. Follow-Up Letters: If the debtor does not respond to the initial letter or fails to make payment, you may consider sending one or more follow-up letters. These letters can be spaced out over time to give the debtor additional opportunities to address the debt.
  3. Escalate: If your customer continues to ignore you and does not make arrangements to pay the debt, you may need to consider hiring a collections agency, filing a lawsuit, or pursuing other legal remedies.

Ultimately, the number of letters you send should be based on your customer’s response (or lack thereof) and your company’s collection policies. It’s essential to strike a balance between persistence in pursuing payment and avoiding harassment or aggressive tactics that could violate debt collection laws. If you’re unsure about how many letters to send or what actions to take, it may be helpful to consult with a legal advisor or collections expert familiar with the laws and regulations governing debt collection in your jurisdiction.

Are First-Party Collection Letters Subject to FDCPA Regulation?

First-party collection letters, those sent directly by the creditor or the company owed money, are generally not subject to the Fair Debt Collection Practices Act (FDCPA). The FDCPA primarily regulates the activities of third-party debt collectors, such as collection agencies, rather than creditors collecting their own debts.

However, while first-party creditors are not subject to the FDCPA, they are still required to adhere to other applicable laws and regulations, such as the Fair Credit Reporting Act (FCRA) and state debt collection laws. These laws govern how creditors can pursue debt collection activities, report information to credit bureaus, and communicate with debtors.

It’s essential for creditors to understand and comply with all relevant laws and regulations when engaging in debt collection activities, even if they are not subject to the FDCPA. Failure to do so could result in legal liability and potential damages. Therefore, it’s advisable for creditors to seek legal guidance to ensure their debt collection practices are compliant with applicable laws and regulations.

FAQ’s About Third-Party or Bad Debt Collection Letters

What is a 3rd Party Collection Letter?

The short answer: A third party collection letter is sent for you generally by a collection agency. You are the first party, the customer or debtor is the second party and the collection agency is the third party.

The long answer: A third-party debt collection letter is a written communication sent by a debt collection agency or a third-party collector on behalf of a creditor to a debtor who owes money. Unlike first-party collection letters, which are sent directly by the creditor, third-party collection letters are sent by external entities contracted by the creditor to recover the outstanding debt.

These letters typically contain similar information to first-party collection letters, including details about the debt amount, the original creditor, payment instructions, and the consequences of non-payment. However, they may also include additional information, such as the name of the collection agency and instructions on how to dispute the debt or request validation.

Third-party collection letters serve as formal notices to the debtor that the debt has been assigned or transferred to a collection agency for further collection efforts. They aim to prompt the debtor to take action to resolve the debt, either by paying in full, negotiating a settlement, or arranging a payment plan.

It’s important to note that third-party debt collection activities are subject to regulations such as the Fair Debt Collection Practices Act (FDCPA) in the United States, which sets guidelines for acceptable debt collection practices and prohibits abusive, deceptive, or unfair practices. Therefore, third-party collection letters must comply with these regulations to ensure that debt collection activities are conducted ethically and legally.

How should debt collection letters be structured to be effective and ethical in their approach?

Effective and ethical debt collection letters should be carefully structured to approach the situation with sensitivity and understanding. The primary focus should be on acknowledging the financial challenges that may be causing delays in repayment, while ensuring that the recipient is not subjected to any abusive collection tactics. To achieve this, collectors should adhere to specific practices set by the government to protect debtors.

In crafting these letters, debt collectors should consider using clear and concise language that is respectful and non-threatening. The tone of the letter should be professional and empathetic, conveying a willingness to work with the debtor to find a suitable solution. It is important to provide all relevant information regarding the debt, including the amount owed and any payment options available.

Debt collection letters should include contact information for the debtor to reach out if they have any questions or need assistance. This openness to communication helps build trust and allows for a constructive dialogue between the collector and the debtor. By following these guidelines and best practices, debt collection letters can be both effective in facilitating repayment and ethical in their approach to handling sensitive financial matters.

Why would I turn to a collection agency for third-party collection letters?

When a debt is left unresolved for a significant period, it poses a risk to your organization’s financial health and impacts your ability to maintain operations. Delinquent accounts lead to cash flow problems, hindering the organization’s ability to pay its own bills and employees, compromising its overall stability.

Collection agencies specialize in pursuing overdue payments and can often be more successful in securing repayment compared to internal collection efforts. Moreover, allowing a debt to linger unpaid for an extended period can have negative consequences for the organization’s reputation and credit standing. If debts are not addressed promptly, it can reflect poorly on the organization’s financial responsibility and may deter other creditors or business partners from engaging with them in the future. Therefore, sending a debt to collections serves as a formal step to enforce payment and protect the organization’s financial interests and reputation.

Resorting to third-party collections is typically considered when efforts to collect the debt internally (i.e., first-party collections) have been unsuccessful or when it becomes impractical or inefficient for the creditor to continue pursuing the debt on their own. Here are some situations when you might consider using third-party collections:

    1. Unsuccessful Internal Collections: If your initial attempts to collect the debt directly from the debtor have been unsuccessful despite multiple reminders and communications, it may be time to involve a third-party collections agency.
    2. Limited Resources: If your company lacks the resources, manpower, or expertise to effectively pursue debt collection activities, outsourcing to a third-party collections agency can be a cost-effective solution.
    3. Legal Concerns: If the debtor disputes the debt or if legal action is necessary to recover the debt, working with a collections agency that specializes in debt recovery and has legal expertise can be beneficial.
    4. Time Sensitivity: If the debt is aging, and time is of the essence to recover it before it becomes uncollectible due to statute of limitations issues, involving a third-party collections agency can help expedite the process.
    5. Geographical Limitations: If the debtor is located in a different geographic area or operates in a jurisdiction where your company does not have a physical presence, a local collections agency may be better equipped to pursue the debt effectively.
    6. Regulatory Compliance: Utilizing a reputable third-party collections agency can help ensure compliance with debt collection laws and regulations, reducing the risk of legal liability for your company.

When should I send a 3rd party debt collection letter?

You should send a 3rd party collection letter after your in‐house calls and letters have failed to produce results.

I’ve already made calls and sent letters, how are yours any better?

There are a number of reasons our calls and letters might work while yours did not.  

  1. Expertise and Specialization: Our team of over 100 seasoned professionals specialize in debt recovery. We have the knowledge, experience, and specialized tools to navigate the complexities of debt collection efficiently. By entrusting us with your debt recovery needs, you’re leveraging our expertise to achieve better results.
  2. Persistence and Consistency: Maintaining a consistent follow-up schedule can be challenging amidst your other business priorities. Our dedicated team is committed to pursuing debtors relentlessly, ensuring that no opportunity for recovery goes overlooked. Our systematic approach ensures that every debtor receives the attention necessary to facilitate payment.
  3. Leveraging Industry Best Practices: We adhere to industry best practices and stay updated on the latest regulations governing debt collection. Our strategies are tailored to maximize recovery rates while remaining compliant with relevant laws and regulations. By partnering with us, you benefit from our knowledge and commitment to ethical collection practices.
  4. Enhanced Communication Channels: Our collection efforts extend beyond traditional letters and calls. We utilize a diverse range of communication channels, including email, SMS, and online portals, to engage debtors effectively. This multi-channel approach increases the likelihood of reaching debtors and facilitating prompt resolution.
  5. Customized Solutions: We understand that every debtor and situation is unique. Our team takes a personalized approach, tailoring our strategies to suit the specific circumstances of each case. Whether it involves negotiating settlements, setting up payment plans, or pursuing legal action, we adapt our approach to achieve optimal outcomes.
  6. Track Record of Success: Our proven track record speaks for itself. We have successfully recovered debts for 1000’s clients across various industries, demonstrating our ability to deliver tangible results. Our goal is not just to recover outstanding debts but to exceed your expectations and foster a long-term partnership built on trust and results.

What is Statute of Limitations

The statute of limitations refers to the legal time limit within which a creditor or debt collector can file a lawsuit to enforce a debt. Once the statute of limitations expires, the creditor or debt collector loses the right to sue the debtor for the debt in court. The statute of limitations varies depending on the type of debt and the laws of the jurisdiction where the debt originated or where the debtor resides.

What if my debt is out of statute?

While the statute of limitations determines the time frame within which a creditor or debt collector can file a lawsuit to enforce the debt, it does not extinguish the debtor’s legal obligation to pay the debt. Therefore, even if the statute of limitations has expired, the debtor still owes the debt, but the creditor or debt collector may no longer have legal recourse to enforce payment through the court system.

Bottom line, while it’s not illegal for a first-party creditor to continue to engage in collection activity after your debt is out of statute, you can’t credit report it and you can’t take legal action i.e. you can’t sue.

So generally, in our opinion your time would be better spent focusing on putting a process in place to ensure your invoices are collected in a timely manner in the future.  

  1. I have no list here but Word Press will simply not delete this line

If you have a question we haven’t answered here please call us at 800-201-CA$H (2274) ask for Vienna x110.