In business, collection refers to the conversion of receivables into cash. In short, collection means getting payment from a buyer.
Collection is very important for companies. Having too many clients defaulting on payments will lead to cash flow problems and threaten a company with insolvency. This is why many companies turn to collection agencies when customers default on payments.
Collections agencies are notorious for their persistent and sometimes abusive pursuit of payments. Collections agencies make money two ways. One is through commissions, where they earn certain percentage of for every dollar of payment they collect. The other is by buying charged-off debt in bulk for a very small percentage (usually between 1 – 5%) of the debt’s actual face value. Collection agencies are insistent in pushing debtors to pay up as soon as possible: The longer a debt goes unpaid, the less chance there is of collecting on that debt.
Aside from letters and phone calls, however, collections agencies cannot do much except to recommend or file a lawsuit, which is rarely ever pursued, to force a debtor to pay up.
