So many businesses that offer credit to customers do not want to take real strong action on customers who do not pay their bills. So they work with Collect Agencies.
After a certain period of time without getting paid the business will write off the debt and sell the debt, or turn the debt over to a Collection Agency.
Selling the Debt to the Collection Agency
The Agency will pay between 4% and 10% of the debt balance depending on several factors involving the debt. Those factors include Age of debt, last payment on debt, amount of debt, how much other business the collection agency does with the lender.
Turning the Debt over to the Collection Agency
There are a couple of ways this can work. The lender can pay a fee per bad debt or the lender can give the Agency a percentage of the collection.After being contacted by a Collection Agency
Never admit to owing money until the debt is verified. A lot of collection attempts are made that are actually for someone elses Debt.
Before you Pay a Collection Agency
I would never pay a Collection Agency unless I had a signed written agreement that they would remove the collection from my credit.
Get the Debt Verified
I would demand that they verified that I owed the debt. Check on the web for Debt Verification letter.
After the Collection Agency Verifies the Debt Negotiate
I would also negotiate hard to get the amount down to at most 50% of the Verified amount owed. Don't be afraid to walk away during the negotiations. They have 7 years to collect, in some states up to 10 years. Unless the amount is significant they will not sue you.
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