What is debt collection and how does it work?

Are you tired of dealing with customers or debtors who don’t pay on time? Are you concerned about the financial health of your business or your personal finances? If so, you may need to learn more about debt collection. 

In this article, we will explain what debt collection is and how it works, so you can better understand this process and keep an effective control of your collections. In addition, we will give you some useful tips and tools to recover your debts without affecting your relationship with your customers. Don’t miss this complete guide on debt collection!


What is debt collection?

This process is applied when a customer or debtor has not paid an invoice or loan within the established term, and the payment period has expired. In this case, the company or creditor has the option of collecting overdue payments on its own, hiring the services of a collection agency like Oddcoll or an attorney specialized in debt collection and international debt collection. It works worldwide even in specific countries. You can check its specific pages: Debt Collection Agency Philippines, Debt Collector Malaysia or Debt Collection Agency USA.

The objective is to recover the money and prevent the delinquency from damaging the financial health of the affected company or individual.


Types of Debt

There are different types of debts that can be collected through the debt collection process. Here are some examples:

  • Commercial: These are generated between companies, such as, for example, the payment of an invoice for the purchase of goods or services.
  • Bank loans: Developed for loans or credits granted by a banking entity.
  • Taxes: These are debts arising from taxes or fines not paid to the tax authorities.
  • Mortgage: Debts created by mortgage loans for the purchase or construction of a home.
  • Credit cards: Originated by the use of a credit card to make purchases or cash withdrawals.
  • Personal: These are debts generated between individuals, such as, for example, the loan of money to a friend or relative.

It is important to note that the debt collection process may vary depending on the type of debt and the laws in force in each place. For this reason, it is advisable that the companies and individuals concerned are properly informed about the conditions and requirements that must be met to carry out the collection process for each type of debt.


Debt collection process: initiation, collection, legal action and recovery

The debt collection process may vary depending on the legislation in each country, but generally follows a similar process consisting of the following steps:


1- Initiation

The creditor company sends an invoice, stating the due date and payment terms. If the debtor does not execute the payment within the established term, it is considered as a delinquent payment.

2- Collection

By sending payment reminders or telephone calls, we seek to reach a payment agreement with the debtor, establishing new payment dates and conditions that adjust to the debtor’s possibilities.

3- Legal action

If the debtor does not respond to payment reminders or does not comply with the established agreements, the company may initiate legal action to recover the debt. At this stage, a specialized lawyer is hired to file a lawsuit before the corresponding court.

4- Recovery

If the claim is accepted by the court, the debt recovery process is initiated. This may involve the execution of a judgment ordering the seizure of the debtor’s assets, or the negotiation of a payment plan to recover the debt within established terms. 

In some cases, debt recovery may take several months or even years, depending on the complexity of the case and the debtor’s ability to pay.


Debt Collection Methods

There are several methods you can use to recover the money. Some of the most common are:

Internal debt collection

This method implies that the company proceeds with the debt collection process on its own, without resorting to external services. In this modality, the company or person concerned can establish new payment agreements with debtors and constantly monitor accounts receivable. 

Internal debt collection can be effective for small debts or for debtors who are in a stable economic situation.

External debt collection agencies

They consist of hiring the services of a collection agency to carry out the debt collection process. Collection agencies are specialized companies that are in charge of recovering outstanding debts on behalf of their clients, through the application of different collection methods, such as sending collection letters, e-mails, among others. 

This method can be effective for large debts or for debtors who have not responded to payment reminders from the company.

Debt buyers

Involves the sale of the outstanding debt to a third party. Debt buyers are specialized companies that acquire the outstanding debts at a price lower than the original amount, with the objective of later restoring them through different collection methods. Once the debt buyer acquires the debt, it becomes the new creditor and takes over the debt collection process. 

It can be effective for companies that want to quickly recover liquidity from their receivables, although the price at which the debts are sold may be less than the original amount.

Key Players in Debt Collection

Key players in debt collection are those who play a fundamental role in the process of recovering outstanding debts. Here are some of them:

  • Creditors: These are companies or individuals who have the possibility of claiming payment of an outstanding debt.
  • Debtors: Individuals or companies that have incurred in delinquency and have an outstanding debt with creditors.
  • Collection agencies: These are companies that specialize in the recovery of outstanding debts, working on behalf of creditors to recover the money owed.
  • Attorneys: These are legal professionals who advise creditors in the debt collection process and, in some cases, represent creditors in legal actions to recover the debt.

Each of these key players in the debt collection process has a specific role to play and their collaboration, as well as their work, is important to achieve an effective and fair recovery of outstanding debts. 


5 Debt Collection Techniques

Debt collection is a fundamental part of the financial process for any company or individual. Therefore, here are some of the techniques used to collect debts:

  • Communication techniques

They are a set of skills used to establish effective and persuasive communication with the debtor. These techniques include skills in listening and understanding the debtor’s financial situation, announcing information in a clear manner, as well as skills in persuading the debtor.

  • Negotiation strategies

They are used to reach an agreement with the debtor as to how the debt will be repaid. These strategies include listening to and understanding the debtor’s needs, presenting payment options that are viable, and persuading the debtor to agree to a payment plan.  

  • Localization of unpaid accounts receivable

It is known as the search for debtors who have disappeared or have stopped communicating with the creditor. This technique may include searching for information through social networks, public records and specialized databases.

  • Debt payment plans

They are an agreement between the creditor and the debtor as to how the debt will be repaid. These plans may include installment payment options, partial payments, reduced interest or late charges. In addition, they can be customized to suit the financial situation of the defaulter.

  • Litigation

They are a legal step that can be taken to recover the debt. This may include filing a lawsuit in court and obtaining a court order for payment of the debt. This technique is used when all other options have failed and court intervention is required to recover the money.


Consequences of non-payment of debts

Non-payment of debts can have serious financial and legal consequences for the debtor, which can include:

  • Damage to credit rating: Defaulting on debts can negatively affect a debtor’s credit rating. This can make it more difficult to obtain credit in the future, result in higher interest rates, and limit financing options.
  • Legal actions and court judgments: The creditor may take legal action to recover the money owed. This may include filing a lawsuit in court, which may result in a court judgment against the debtor.
  • Wage Garnishment: If the creditor obtains a court judgment against you, you may request a wage garnishment. This means that the debtor’s employer will withhold a portion of your wages to pay the debt.
  • Garnishment of assets: If the debtor is unable to pay the debt and the court judgment allows it, the creditor may request a garnishment of assets. That is, the plaintiff may seize the debtor’s assets and sell them to recover the debt.

Debtors’ rights

Debtors have rights that protect their financial well-being and help them avoid being victims of illegal or unfair debt collection practices. Some of these rights include:

  • Right to receive clear and accurate information about the debt: Including the amount owed, the name of the creditor and the date the debt was incurred.
  • Right to be treated with respect and free from harassment by debt collectors: Debt collectors may not use offensive or profane language, threaten illegal actions, or disclose false information about the debt.
  • Right to dispute the debt and request verification: If a debtor believes the debt is inaccurate, he or she has the right to dispute it. Debt collectors must provide verification of the debt if requested.
  • Right to be informed if the debt has been sold to a third party: If the debt has been sold to a debt collection agency, the debtor has the right to be notified of the sale and to receive information on how to contact the agency.
  • Right to be notified of legal action against them: If legal action is taken against a debtor, they have the right to be notified and receive information about the process.

Related article:Bill vs Invoice

3 Tips for debt management

Managing debt can be a challenging task, but it is important to make it as efficient as possible to avoid negative financial consequences. If you want to know how to do it, here are some tips:

  • Create a budget: This is an essential tool for managing your finances. Start by recording your monthly income and expenses, then look at where you can reduce your expenses. Be sure to include debt payments in your budget and set a realistic payment plan.
  • Negotiate with creditors: If you are struggling to pay your debts, contact your creditors to negotiate a payment plan. Explain your financial situation and suggest a payment plan that you can meet. Many times creditors will be willing to work with you to set up a payment plan that will allow them to get their money back.
  • Seek help from credit counseling agencies: They can provide financial advice and resources to help you manage your debts. These agencies can help you consolidate your debts, set up a repayment plan and negotiate with your creditors.



Debt collection is a process used to recover money owed to a creditor. This process may involve contacting the debtor by phone or mail and in extreme cases, filing a lawsuit to recover the funds. On the other hand, it is important to keep in mind that debt collection is regulated by law and there are limits to the tactics that can be employed to recover the debt. 

Therefore, we recommend you to manage your debts effectively, since you will be able to avoid debt collection and keep yourself in a healthy financial situation.

4 min read.

  What regulations apply.
  The international collection process.
  How to achieve effective debt collection.

Oddcoll is a platform with Debt Collectors worldwide, enabling internationally- oriented companies to recover their overdue invoices with ease.

Countries we cover

We cover the whole of Europe

Central Asia

Debt collection Armenia
Debt collection Azerbaijan
Debt collection Georgia
Debt collection Kazakhstan

Debt collection Kyrgyzstan
Debt collection Mongolia
Debt collection Tajikistan
Debt collection Uzbekistan


All Countries in Africa

Applies to all our partners

– Legal authorization to recover claims in their countries
– B2B Collection Specialists
– Communicates in English
– Experts in their national debt recovery legislation

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