15 Sep 2023
by Jules Eames FCICM (Grad); PGCE

The importance of Debt Collections and Debt Collectors

In this blog, we will look at what Debt Collections is and why it is so important.

What is Debt?

Debt is money owed to another. This debt could be unpaid bills or invoices for goods and services, repayment of a financial service or money loan, or overdue sums for a range of obligations such as fines, taxes and rent.

Many businesses strive to make transactions straightforward for their clients and customers, with automation and advanced notice of payments.

However, some customers still to fail to pay on the date they are due to. This delay in payment could occur because of a misunderstanding, a financial issue, an unresolved query or simply because they had forgotten to pay what they owe.

This is where Debt Collections comes in.

What is Debt Collections?

Debt Collections is the activity an organisation performs to recover money from another organisation or individual who has failed to pay their debt on time. This often involves collections strategies that incorporate auto-prompts, reminder systems, customer contact processes and non-payment consequences.

Commonly, in-house collections processes are undertaken. This means the organisation that is owed the money, takes steps to collect the sum due directly. However, many organisations also source the services of specialist external Debt Collection Agencies, or DCAs, to aid the recovery of unpaid debts. Debt Collectors in those external DCAs have the job of recovering the money and returning the funds to the organisation that is owed it.

Importance of Debt Collections

Debt Collections and Debt Collectors play pivotal roles in organisations for several reasons:

1.    Financial stability

Unrecovered debts have a negative impact on the finances of the organisation that is owed the money. Slow payment erodes profit because there are costs associated with collecting the payment and funding the period of non-payment. There are lost opportunity costs, as unpaid businesses cannot use the expected funds for any growth initiative. And if the debt is unsuccessfully collected and written off as “Bad Debt” this instantly reduces the profit figure for the business.

2.    Cash flow

When debts are paid on time, the expectation of that payment can be factored into the business’s cashflow statement. This means the business can better manage the in-flows and out-flows of its funds. Many businesses rely on this income at a pre-determined time to fund its day-to-day operations. However, when some of that debt remains unpaid, and the funds are missing, it can dent the cash flow of the business. Regular cash injections of recovered funds from DCAs can give the organisation the cashflow boost needed to manage its own payments.

3.    Customer Relationships and Loyalty

A good Debt Collector understands the importance of empathy and their skills in building  customer relationships.  These skills are essential to help “win” overdue payments. Debt Collectors that can identify and assess the customer’s problems, then work together to find a solution that benefits both the customer and the organisation, are invaluable to an organisation’s cash flow, profit line and reputation.

When the Debt Collector’s approach is positive and customer-centric, it can serve to build customer relationships which, in turn, impacts future business. This is because customers who are correctly assisted by a Debt Collector, to return to a paying position, are more likely to return as a repeat customer. Not only will their debt-free position retain their status with the organisation, but their positive experience is proven to drive loyalty.

The responsibilities of a Debt Collector

A Debt Collector is ethically obliged to provide a professional service to both the organisation owed the money, and the organisation or individual who owes the debt. To collect debts, a debt collector needs to be well trained in a diverse range of skills. Regular re-training ensures Debt Collection is successfully and efficiently carried out in a way that maximises success without damaging relations or reputation. Four core skills are communication, record-keeping, legal compliance and data analysis.


Effective communication is essential. Debt Collectors need to strike a balance between being firm and being understanding. Repayment plans, for instance, need to be agreed and clearly explained in a way that ensures both parties are happy with the outcome.

A Debt Collector must be well-versed in multiple communication methods such as phone calls, video calls, letters and emails and utilise the relationship they have built with a customer to identify the most effective way to encourage them to pay.


There are multiple records that a good Debt Collector should keep. Records of communication, payment agreements and reasons for non-payment need to be taken and stored within the obligations of data protection. Sensitive information, such as a vulnerability or a protected characteristic, requires care to uncover, obtain explicit consent to disclose, and then subsequently record. There may be several other pieces of information related to the debt, such as financial accounts, budgets, insurance, security, power of attorney and other liabilities, that can serve as a reference point to help Debt Collectors in any future contact.

Legal Compliance

Debt Collection practices are subject to various legal regulations. DCA’s are bound by specific laws that range from licensing to collect through to anti-harassment approaches. The reputable ones are also subject to codes of conduct within their industry.

It is a Debt Collector’s responsibility to ensure they are up-to-date and informed on these regulations and codes to avoid breaking the law. All debt pursued should be done so in an ethical and respectful manner that prevents harassment or intimidation.

While we discuss the matter of compliance, it may be worht mentioning that our legal partner, Shoosmiths, can give CICM Member's free legal advice.

Data Analysis

Successful Debt Collectors analyse data to identify trends and patterns in repayment behaviours. This analysis aids the overall strategy of collection and the design of approach for different cases.

An effective Debt Collections strategy and the skilled actions of Debt Collectors increase the chance of recovering unpaid debt successfully.

Ultimately, Debt Collections holds a crucial role for businesses because it mitigates the risk of bad debts, ensures the organisation has a healthy cashflow and creates financial stability. Debt Collectors add value to this when they apply their communicational skills, organisational skills, knowledge of legal compliance and application of data analysis to their collections work.

As we move further into the development of technology, AI and automation, Debt Collections in the digital age becomes more efficient and allows the Debt Collector to re-allocate their focus on tasks that are more important. However, it is important to understand that, though technology continues to improve efficiency, there are benefits to knowing your customer, developing your relationships and utilising empathy within collections to maximise your effectiveness.