The core function of a debt recovery agent is to collect dues/receivables from specified debtors of the bank as per agency agreement entered with the principal. Remitting the collected funds to principal, keeping account of the receivables collected and yet to be collected and reporting the position and developments to the principal are essential but ancillary to the core function. All these functions will be specified in most agency agreement and would require to be accordingly discharged by the debt recovery agent.
Apart from the easily collectible receivables, most banks have on their books over due receivables from debtors who are not traceable, or who show unwillingness pay or who resist surrendering the security charged. In such cases, the recovery process is difficult and requires handling by specialized collection agencies to process the required expertise. The functions of re-processing the security, initial legal action and tracing the vanished debtors may be called as specialized function of debt collecting agencies.
Collecting dues receivable:
As mentioned above, collecting dues is the core function of a debt recovery agent. Receivables refer to the sums of money which have become due in the loan/advances accounts and are payable on or after due dates by the debtors to the creditors as per the loan/advances agreements entered between the lenders and creditors. Thus the receivables in a loan/advances account connote the following essential features:
- Existence of loan or advance agreement between the creditor and debtor.
- Due date on or after which the obligation is required to be discharged by the debtor in favour of the creditor.
In terms of the arrangement between the creditor bank and the debt recovery agency the former authorizes the agent to collect specified receivables from the named debtors on or after the specified due dates. The required particulars of the debtors and receivables to be collected from them are furnished by the bank to the agent, along with copies of the relative loan agreements.
Thus the debt recovery agent is legally authorized to collect the specified receivables from the debtors on behalf of the principal:
- The loan agreement, and
- The debt collection agency agreement.
The procedure and processes of debt collection, code of conduct in collection process and other regulatory requirements that need to be complied with by the recovery agents are discussed in subsequent units.
Remitted collected funds:
The funds collected from the debtors should be sent deposited by the agent to the creditor periodically as per the agency arrangement. Statement of collections remitted should also be sent along with the remittance, preferably in duplicate and the copy acknowledged by the bank be kept on record by the agent, in chronological order, for future reference. These statements of remittance will from the basis of claiming the agreed fee or commission by the agent from the principal in due course.
Book keeping of recovery management:
While each debt recovery agent may devise his/her own accounting and book keeping methods, he/she has to take care of the reporting requirements of it principal. Further, book-keeping has to be sperate for each principal. IT following would constitute the minimum requirement of book-keeping for a recovery agent.
- Lists of debtors received from the principal: Collection of receivables is an going activity of a recovery agent who may receive the ‘debtor’ lists from the principal from time to time. The debtor lists from the basis of agent’s activities and also the book-keeping required. These should therefore be carefully kept on record in chronological order.
- Ledger account of each debtor: Showing the amounts of receivable collected and balance to be collected should be kept in chronological or this can be maintained in the computer also. It may be note that all the collections/recoveries should be remitted to the a bank. Normally agent cannot adjust its dues on account of fee against the recoveries made on behalf of the bank.
- Copies of loan/advances: Agreements between the debtors and the bank is obliged to keep confidentiality of its customer’s accounts and recovery and these should not be divulged to third parties without the customer’s sent. As such, a debt recovery agent must take all due care to the required privacy and confidentiality as regards the records of each due furnished by the bank and also as regards the collections made remitted by him to the principal.