Debt recovery and debt collection are similar to a minor but significant difference. The distinction is who’s fighting to get the debt back.

Debt collection

It is where the client fails to pay what he owes, according to a specific payment, lease or contract.

If you skip a payment, the borrower (i.e. the person or business from whom you borrowed the money from) will soon be in communication to remind you to make the payment.

The ‘chasing’ of the debt is kept ‘in-house’ and may take the form of e-mails, phone calls and letters – all directly from the creditors themselves.

Many of the larger companies have a department dedicated to pursuing debts, which they typically step in around 30 days after payment has been delayed.

Debt recovery

This happens when a consumer fails to make a payment; the deal, arrangement or account stays outstanding and the creditor hires a third party, as a collection agency, to work on recovering the money.

If the creditor tries to contact the debtor a number of times, but still fails to pay the money they owe or set up a payment plan, the creditor may consider the services of a third party collections agency to help recover the debts.

This is debt recovery– a legal party working in behalf of the creditor to reclaim the money owing by the debtor.

What does this mean to the debtor? When notified by a third party debt collection agency, this will be reported and their credit score will be impacted. The debt recovery service will then attempt to reach the delinquent by phone or mail, and then begin the process of making a legal case against them.

Regardless of which….

Debt will impact your credit score. When you are contacted by a debt collection agency, that means that there is a report that you have not paid on time and that you actually have delinquencies. The service reports the delinquency to credit bureaus, hurts the credit record, and inhibits any potential lending or investment prospects of the provider.

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