Collection - Term Overview

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Collection is the act or procedure by which the consideration for a good or service or the cancellation of a debt is obtained.

That is, the collection is the obtaining of an agreed payment. This doesn't necessarily occur at the same time that the seller delivers his merchandise or that the employee performs the commissioned work.

That is, the collection can occur before, during or after receiving the requested good or service. Thus, if the collection is made earlier, it's called advanced.

On the other hand, the collection is also carried out on a financing granted. In this case, who must collect is the financial institution or the respective creditor.

An important point to note is that the person who offers the product or service, or who grants the financing, is the one who usually decides the form of payment. For example, banks determine the day or days of the month when the credit cards they issue expire.

Another issue to take into account is that, by law, in a collection process harassment is usually prohibited, with constant calls to the defaulter, for example. Nor can you resort to threat.

It should also be noted that the person whose job it's to collect is called a collector.

Collection companies

We must remember that a bank usually delegates its delinquent portfolio to a collection company. This entity, in turn, will communicate with the debtor to negotiate the repayment of the loan.

In case the borrower finds himself in a difficult situation, perhaps insolvency, the collection company can offer him a discount on the principal of the loan, for example. In this way, at least part of the credit is guaranteed.

It should be noted that collection companies can also be hired by non-financial companies to recover their accounts receivable.

Collection types

There are three types of collection:

- Formal collection: When the creditor entity manages internally, with its own team and resources, the recovery of the debt.
- Judicial collection: When the Judicial Power is used to demand the cancellation of the debt through a trial. The creditor must hire a lawyer or legal team and must also pay the expenses of the process.
- Extrajudicial collection: When the creditor seeks the recovery of the debt without having to take the debtor to trial. We refer, for example, to the fact that a collection company can be hired.

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