Debt collection is where the creditor chases the debt themselves and debt recovery is where they enlist the help of a third party like a debt collection agency.
Debt collection and debt recovery are very similar terms. Both involve trying to recoup money that’s gone unpaid, but the crucial difference involves who is trying to chase the debt payment.
Let’s take a look at both options in more detail:
Key terms
Debtor – the person who has borrowed money, and has to repay it
Creditor – the individual or business which has extended the credit with an agreement and payment schedule
What is debt collection?
If you miss a payment for a loan or credited service, your creditor (i.e. the person or company that you borrowed the money from) will soon be in contact to prompt you to make the payment.
This is debt collection. The ‘chasing’ of the debt is kept ‘in-house’, and may take the form of emails, phone calls and letters – all directly from the creditor themself.
Most larger businesses have a department dedicated to pursuing debts, and will usually step in around 30 days after the payment is missed. If they are unable to make progress with the debtor, they may either opt for debt recovery using a third party (see below), or may elevate their claim to the courts.
Businesses choosing to take a debtor to court should make sure they’ve completed the ‘Pre-Action Protocol’ before submitting a claim.
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What is debt recovery?
If the creditor attempts to contact the debtor several times, but they still don’t pay the money they owe or set up a payment plan, the creditor may enlist the services of a third party to help recover the debts.
This is debt recovery – a third party, acting on behalf of the creditor to recoup the money owed by the debtor.
What does this mean for the debtor? Once they’ve been contacted by a third party debt collection service, this will be recorded and impact their credit score. A debt collection agency will first try to contact the debtor by phone or letter, and will then start the process of bringing a court case against them.
If you find yourself in debt, you mustn’t ignore contact from a debt collection agency, even if you can’t pay the money back straight away – it will only make matters worse, and failure to show up for your court hearing will result in the judge automatically ruling against you.
FAQs
However, as you might expect, it’s not quite that clean cut in practice. If the creditor can prove they’ve taken reasonable steps to contact the debtor during these six years, they may be able to obtain a County Court judgement later on. And if the debt is a crown debt (court fines, council tax etc.) it won’t be voided after the six years regardless of whether contact has been made.
The debt collection agency will usually make contact via a telephone call and following this a letter. Failure to recover the funds could mean legal action is taken against the debtor.
