Third party collection is a form of debt collection which is performed by a third party, a person or entity who was not part of the initial transaction or contract. Creditors may turn to third parties when their own collection efforts are not effective. The activities of third party debt collectors are limited by law in many regions of the world and people who are in debt would be well advised to get informed about the specific laws in their regions, as debt collectors sometimes attempt to skirt the law when they make efforts to collect on a debt.
Many large companies have their own collections departments. Initially, these departments will attempt to collect the debt internally for the company. If the debtor does not respond, the company can hire a collections agency which specializes in third party collection. Smaller companies may turn immediately to an agency because they cannot afford to maintain a collections department.
Classically, third party collection starts with a series of letters, for which the creditor pays a flat fee. The letters encourage the debtor to pay the debt in full to the creditor. If there is no response, the creditor assigns the account to the agency and the agency can take more aggressive means to collect on the debt. If the debt is collected, the agency retains a commission and sends the rest to the creditor. Creditors want to avoid third party collection because it means that they cannot collect the debt in full, thanks to the commission which must be paid.
Collection attempts can include letters and phone calls to the debtor. Depending on the jurisdiction, the agency may be able to file suit on behalf of the creditor and to take other steps. If someone has cosigned on the debt or assumed responsibility for a debtors outstanding debts, the third party collection can include attempts to collect debt from this person as well as the original debtor. The collections agency usually cannot, however, confiscate assets belonging to the debtor unless a suit has been filed and judged in favor of the collections agency.
It is important to be aware that when a third party collection occurs, the creditor still owns the original debt. Creditors can also opt to sell their debts to companies which buy debt and collect on it. When the debt is purchased, the new buyer becomes the creditor. Companies which buy debt can be quite aggressive and people who owe money would be well advised to try and work out a payment plan or settlement before the original creditor sells the debt.