Debt collection has trouble getting favorable press. News organizations enjoy highlighting horror stories about debt collection, which reflect poorly on a sector of the economy that otherwise does a great deal of good. The importance and worth of a company that faithfully injects money into the US economy and, ultimately, into the pockets of every American family, have frequently been overshadowed by the awful crimes of a small group of dishonest people.

Each household actually saves money, and it does so in difficult-to-calculate ways. Without the assistance of independent debt collectors, some commodities would be more expensive if consumers weren't advised financially to fulfill their responsibilities to pay for such commodities. Returning past-due debt to the economy has a positive impact on millions of people's employment and pay, as well as lowering lending interest rates and repairing credit scores for individuals.

Many states have vigorously and strictly regulated the debt-collecting industry. In many states, financial debt collection agencies are subject to intense scrutiny and have strict regulations guiding their behavior. This typically indicates that a debt collection service with a license has made a significant effort to transparently achieve compliance with state and federal laws. The advantages of debt collection for the economy are further examined here.

4 Ways Debt Collection Helps the Economy

Stabilizing Lending

The stabilization of lending is the area where the debt collection business makes the biggest contribution. From the standpoint of both individuals and financial institutions and lenders, this can be looked at:

Debt collection agencies play a critical role in ensuring that everyone who requires a loan has an equal opportunity to obtain one for those looking for loans. People who require a loan but are unable to obtain one due to the default of other people or businesses will constantly face difficulties. Being in need of a loan but unable to obtain one is not only upsetting, but it can also cause stress and generally be detrimental to their mental health, well-being, and ability to expand their business.

Agencies that collect debt can lessen this pressure and guarantee that everyone has an equal opportunity to get a loan when they're in need. In order to provide financial institutions with the resources they need to perform additional loan agreements, they help them collect and close off existing loans.

This directly relates to the ways in which collection companies assist both borrowers and lenders. Financial organizations and lenders want to lend more money to people, but they are unable to do so if they have too many defaulted loans. By ensuring that financial institutions have the capacity to authorize additional loans, debt collectors can aid in limiting this issue.

Returning Revenue to the Economy

An ACA International analysis states that $55.2 billion in gross revenue was refunded by collection agencies in 2013. According to a report by Ernst & Young, that amount increased to $78.5 billion in 2016, just a few years later.

Therefore, financial debt collection agencies not only play a significant role in recovering income, but their influence in that area has grown yearly.

The same ACA International study also revealed that collection agencies are essential in a wide range of other industries. The following percentages of debt recovered through third-party collections for the following industries in 2013 are shown in the report:

• Health care – 37.9%
• Student loan – 25.2%
• Government – 10.1%
• Financial Services – 12.9%
• Retail – 3.1%
• Telecom – 3.2%
• Mortgage – 2%
• Other – 4.7%

As these percentages show, the influence of debt collection ranges far and wide.

Lowering the Price of Commodities

The Ernst & Young study also discovered that collection agencies aid in ensuring that businesses pay their employees. In 2016, the nation's overall payroll for the collection business was $12.6 billion, up $2 million from 2013.

Lower rates are the result of third-party collection firms helping businesses and government organizations recover money owing for taxes, fines, accounts receivable, and other expenses. These independent organizations are in charge of recovering billions of dollars in past-due debt and reinvesting it in the economy. Other advantages for US businesses include fewer costs associated with bad debt in addition to lower prices for customers. Additionally, future reductions in spending or tax increase for governmental entities.

Job Creation & Making Payroll

According to the same Ernst & Young poll, third-party collection agencies directly employed close to 130,000 individuals in 2016, with a payroll that nearly exceeded $5 billion. The study came to the additional conclusion that the sector had indirectly contributed to the development of around 90,000 employment.

The Ernst & Young study also discovered that collection agencies aid in ensuring that businesses pay their employees. In 2016, the nation's overall payroll for the collection business was $12.6 billion, up $2 million from 2013.

Overall, the findings of Ernst & Young's research make it abundantly evident how crucial debt collection is to the expansion of any economy, be it local, state, or federal.

Debt collection can indeed play a role in supporting the economy in several ways:

Recouping Unpaid Debts

Debt collection agencies in the USA help businesses and creditors recover money owed to them. When debts are paid, it injects capital back into the economy, allowing businesses to meet their financial obligations, invest in growth, and create jobs.

Maintaining Credit Availability

A functioning credit system relies on the expectation that debts will be repaid. Effective debt collection ensures that borrowers are more likely to fulfill their obligations, which, in turn, encourages lenders to continue extending credit. This availability of credit can stimulate consumer spending and business expansion, thereby contributing to economic growth.

Risk Mitigation

Lenders are more willing to extend credit when they have confidence in the ability to recover debts. This increased willingness to lend can spur economic activity as individuals and businesses can access the capital needed for various purposes, such as home purchases, education, and investment.

Reducing the Cost of Credit

When debt collection is effective, it helps reduce the overall risk of lending. This, in turn, can lead to lower interest rates on loans and credit cards. Lower interest rates can make borrowing more affordable, encouraging spending and investment, which can drive economic growth.

Supporting Small Businesses

Small businesses are often more vulnerable to unpaid debts, and effective debt collection can be crucial for their survival. When small businesses can recover what they are owed, they are better equipped to stay afloat, create jobs, and contribute to local economies.

Legal Framework and Consumer Protection

An organized debt collection system that adheres to legal guidelines helps protect consumers from unfair or abusive practices. This regulatory framework instills confidence in borrowers, encouraging responsible borrowing and lending practices, which ultimately benefit the economy.

Final words

Going through the points mentioned above, it is clear that financial debt collection agencies not only help your company recover unpaid debts but are also a great contributor to the economy. Balancing the interests of creditors and debtors is essential to ensure that debt collection truly benefits the economy as a whole.