An outstanding account receivable of a creditor towards a debtor forms the starting point for debt collection proceedings. In most cases, these are payment claims under a contract concluded between the creditor and the debtor, such as, e.g. a purchase agreement. Depending on their type, size and strategy, companies either have their own internal receivables management and take care of the collection of outstanding receivables or try to avoid payment defaults through internal measures upstream. However, especially companies with a large number of customers often decide to hand over receivables management (or debt collection) to a collection agency. In principle, there are two options for this. The creditor can sell the account to a debt colletion agency or, as an alternative, the creditor can simply commission the company to collect an outstanding account while still owning the account.
The collection agency contacts the owner of the outstanding account. This is either done by phone or, in most cases, by a collection letter. In both of these, the debtor is informed of the amount of the outstanding account and asked to pay the outstanding amount - plus the costs incurred for debt collection and calling in the debt collection company. This amount is to be paid to the debt collection company forthwith.
There are various methods how companies can carry out debt collection. In principle, we differentiate between two types: the collection of third-party accounts by the collection company and the sale/purchase of third-party accounts. While the professional collection of third-party accounts according to German Legal Services Act (RDG) requires the registration with the competent registration authority, such a registration is no longer required for the professional acquisition of third-party accounts following the entry into force of RDG.
In the first version, the debt collection company collects an open account from the debtor in the name and on behalf of the creditor based on a collection authority of the creditor as the actual client. The second version comprises the so-called collection assignation. In this case, the creditor assigns the outstanding account of the debtor to the debt collection company for the purpose of collection. The third version of debt collection comprises a full assignment (factoring).
In contrast to lawyers, there is no compensation regulation for debt collection agencies. This means that the compensation can be freely agreed betwen the debt collectioon agency and the client as the owner of the outstanding account. The amount of the debt collection costs is based on art.4 section 5 RDGEG (Introductory law to the Legal Services Act).