Debt collection, an unfortunate but necessary process, refers to the timely and orderly process of pursuing and collecting money owed for goods and services bought on credit. Not everyone who has credit uses their purchasing power wisely - including individuals and businesses. Debt collection occurs after a business extends credit to his customers by invoice, or to larger businesses or corporations by way of in store or revolving credit and the customer fails to pay. As mentioned, this is an unfortunate situation because of financial burden that the lending business acquires. The expense for debt collection eventually finds its way to the customer by way of higher cost.

If you want to prevent being a debtor that pursued by debt collectors, then understand what the debt collection process involves.

A typical business transaction that involves purchases on credit will clearly state what the credit terms are. Credit terms usually include when payment is due, interest rate charged if applicable and late fees. Your responsibility as a consumer is to understand and agree to the terms of service. Assuming you pay your bill on time and in full, the transaction is complete and debt collection is not an issue.

On the other hand, not paying in full will typically result in you receiving another bill at a later date that includes the remaining outstanding balance plus a late fee that is either a fixed amount or a certain percentage of the amount owed. If you have paid for an ongoing service, you can expect that the business will eventually terminate services rendered within a certain amount of time.

The method of debt collection changes if you don't pay your bill at all. First a business may resend the original customer invoice or even call the customer. Here's where you as a customer who has not paid a bill on time can make arrangements to pay down money owed. Businesses understand that circumstances change and are interested in getting the money owed and retaining customer goodwill. Think about it, if you work with a business that is willing to work with you on resolving your outstanding balance, are you likely to due business with that company again? You probably will and you would likely recommend that business to others.

If you as the customer do not pay your bill and after the business has attempted to contact you for arrangements to pay your bill, then more serious collection letters follow. As time goes on, the interest rate along with any additional late fees results in more and more money owed. These follow up letters, referred to as dunning letters, continue to go out on a regular basis with the emphasis on getting paid, obviously, and retaining customer goodwill. You will find that dunning letters typically follow a format that is brief and to the point with short sentences and paragraphs. The letters are typically written in a personal fashion with a salutation at the beginning and a signature at the end. Details of the letter include the date of invoice, the total amount due including fees, a request for immediate payment or by a certain date. These letters are written in a professional tone, are firm, and express a sense of urgency with regards to resolving the late payment. Again, the best course of action on your part as the customer is to pay your bill, contact the company directly and explain your situation and propose a payment schedule or at the very least reply to the most recent letter acknowledging receipt.

If your outstanding debt is not paid off by a certain time a business is likely to turn over your bill to a collection agency. At this point, you can expect the collection agency to be less polite and more forceful in their efforts to recover the amount owed to the business. Collection agencies often work for a certain percentage of the amount they collect. Or in some cases, they may actually buy the bad debt at a small percentage of face value. Expect to receive a form letter and telephone calls from debt collection agencies, forget about the personalized friendly letters from the business. If you as the customer have reached the point were debt collection agencies are calling, then your options are along the same lines as when the business was attempting to collect.

Debt collection, while an unpleasant situation can be resolved by clearly communicating to the business your plan for paying off your debt.