Any business owner or manager who has ever made a collections call has done first party collections, whether they realize it or not. First party collections means collecting on your own accounts, so any request for payment by phone, letter or in person qualifies as first party collections.
The name “first party collections” means that the entity collecting (or an affiliate was a party to the original transaction. The debtor is referred to as “second party,” and “third party” means another entity that gets involved in the attempts at collection, like a debt collection agency.
First party collections are most common early in the debt collection cycle. As soon as your regular accounts receivable staff become aware that a bill is past due, they can pass it on to first party collections without a time lag. First party collections people are often more cognizant of the need to attempt to keep on good terms with the debtor in order to get more potential business in the future.
First party collections attempts are often seen as friendlier or more understanding than activity from third party collections agencies. Your client may rely on your service or product for his business to run, and if so he will be just as amenable to staying on good terms as you are.
In addition, first party collections are not governed by the Fair Debt Collection act, believe it or not. This is because under the law the first party or its subsidiary is considered the lender rather than a collector and it means you can do some things that a third party debt collector can’t by law. There are still state and federal laws that apply, though, so make sure you are familiar with all applicable regulations if you go this route.
Most companies handle their own collections for a period of ninety days to six months. Ideally, when the 2-3 month mark comes up and collections efforts aren’t working, it’s common practice for companies to turn over these accounts to a third party agency or “sell” the debt to them, which means the agency pays for the right to keep whatever return they get on the debt.
The most successful first party collections are done by dedicated collections professionals. Salespeople, accounting staff and business owners just aren’t as capable at collections because their attentions are scattered and collections is one of the least pleasant tasks they have to do.
If you hire an individual or create a department to handle first party collections, however, they can be just as successful as third party collections. If they are knowledgeable in modern collection techniques like private investigation to track down new addresses and phone numbers, offering incentives to get the debtor to call in or working out settlements, first party efforts can be remarkably efficient. When trying to make the decision of which type of collections instruments to use, keep in mind whether you’re spreading your resources too thin or if you have the team in place to do first party collections.
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