A collection procedure clearly outlines policies and procedures an entity takes to collect debts in the event of nonpayment. In some regions, organizations like universities, tax agencies, and utilities must provide information on their collection procedures to members of the public for informational purposes. These policies also create a system for employees to follow when they process debts and represent the company in negotiations with debtors. They may be published in employee manuals and other internal documents.
Such documents may start with a discussion of the basic terms, such as a net 90 repayment agreement for debtors. Under the terms, people have a set period of time to receive their bills and pay them, dispute them, or negotiate a payment plan. If they do not respond, the company can initiate a collection procedure to collect the money. The scope of collection activity can depend on the nature of the debt; tax authorities, for example, may be able to seize property and auction it to cover unpaid taxes.
Under the collection procedure, debtors need to receive notices providing information about the debt, any applicable interest and fees, and where to direct payment. If they respond, the company can enter the next phase, of collecting the debt in full or creating a payment plan. When debtors do not respond to requests for payment, the company may be able to pursue action in court to collect the funds. It can also conduct an investigation to locate missing debtors and identify assets that might be eligible for seizure, if it is authorized to engage in seizure activity.
Clearly established collection procedures can protect a company from legal liability. If it treats all debtors equally, it cannot be accused of discriminatory practices. Having set policies in place allows employees to follow them carefully and neutrally with all debtors, rather than using their own best judgment. The documentation can also be useful in the event of a dispute, as the company can show that it obeyed the law and followed internal procedures when it handled a matter.
Those with questions about collection procedure can ask to see documentation and may request an explanation of any components they have difficulty understanding. Before taking on a debt, it can be advisable to review all terms and conditions, including the collection procedure disclosures. This can provide important information about what people should do when they worry they may not be able to pay.