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Home > Blog > Business Law > Advantages and Disadvantages of Debt Recovery for Small Businesses

Advantages and Disadvantages of Debt Recovery for Small Businesses


Small businesses have an important decision to make when faced with options to obtain money that is owed. Depending on the business, debt recovery may or may not be the best option. To arrive at this decision, the company has to weigh many factors including the amount owed, the cost of the debt recovery process as well as the possibility of securing payment.

Advantages of Debt Recovery

When a loan or credit goes unpaid, debt recovery is the process by which a creditor hires a third party collection service. The debt collector’s primary and sole goal is to collect the money owed. For one, the decision to utilize debt recovery to regain money is strictly tied to the likelihood of securing payment in the first place. Many companies that are owed monies rely on debt recovery processes to make them whole. Debt recovery has many advantages. One major advantage of debt recovery is the fact that the third party’s only function is to recover the debt. Unlike debt collection that occurs in-house, the third party has the expertise and time needed to fulfill the requirements of the task. In addition, debt collection is usually tied to the debtor’s credit score. Which means that if the party does not comply to make payment, their credit will be negatively affected. The threat of damage to one’s credit may raise the likelihood of recovering payment. The business using a third party debt recovery service has to weigh the cost of the service as opposed to the cost of litigation. If the company has a pre-established debt recovery process, there is an advantage of not going through the courts.

Disadvantages of Debt Recovery

The cost of debt recovery depending on the amount owed may deter some creditors from using this mechanism. The cost of hiring a third party, drafting and negotiating a contract on the recovery process may be more than what a small company wants to do to collect a small sum of money. Some small businesses are wise to write-off the debt at the end of the year. Another disadvantage of debt recovery is that a small business can destroy their reputation and the goodwill they have built. This is especially the case if the business is not in the business of lending credit or money. This is also the case for local, family owned business that is widely known in one local. These businesses want do not want to be known for regularly going after their customers. Small businesses that use debt recovery processes must also protect customer information. When a third party service operates externally, there is always a risk of compromising sensitive customer information.

West Palm Beach Creditor’s Rights Attorney

If you are in the process of engaging in debt recovery, we are here to assist you. A knowledgeable attorney can guide you through the process every step of the way. The West Palm Beach team at the Law Offices of Larry E. Bray, P.A. possess years of experience representing businesses with their debt recovery needs. We are here to ensure that your interests are fully met.

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