FUNCTIONS OF DEBT RECOVERY

AGENTS

“We dream with our eyes open”

 INTRODUCTION

The objectives of this unit is to familiarize the reader

with -

• Collecting due receivables

• Remitting collected funds

• Initiating legal action

• Tracing debtors

• Compiling opinion reports

“We dream with our eyes open”
 FUNCTION OF A DRA

• The core function of a debt recovery agent is –

To collect due receivables from the specified

debtors of the bank or other financial company
(principal) as per the agency agreement
entered with the principal.

“We dream with our eyes open”

 FUNCTION OF A DEBT
RECOVERY AGENT
The other ancillary to the core function.
 Remitting the collected funds to the principal

 Keeping account of the receivables collected

 Keeping account of the receivables yet to be

collected

 Reporting the position and developments to the

principal

These functions will also be specified in most

agency agreements and would require to be
accordingly discharged by the debt recovery
agent.
“We dream with our eyes open”
 FUNCTION OF A DEBT
RECOVERY AGENT
Apart from the easily collectible receivables,
most banks have on their books overdue
receivables from

 Debtors who are not traceable

 Debtors who show unwillingness to pay
 Debtors who resist surrendering the security
charged.

In such cases, the recovery process is difficult

and requires handling by specialized collection
agencies that possess the required expertise.

“We dream with our eyes open”

 FUNCTION OF A DEBT
RECOVERY AGENT
• The functions of re-possessing the security,
initiating legal action and tracing the vanished
debtors may be called as specialized functions
of debt collecting agencies.

• Both the normal and specialized collection

functions will need to be performed in
accordance with the recovery policy and
procedure prescribed by the bank (principal)
and also the regulatory and legal
requirements.

• The functions of agents will correspond to their

duties prescribed by law.
“We dream with our eyes open”
 COLLECTING DUE
RECEIVABLES

As mentioned before, collecting due receivables 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 by the debtors to the creditors as
per the loan / advances agreements entered
between the lenders and creditors on or after the
due dates.

“We dream with our eyes open”

COLLECTING DUE RECEIVABLES
• Thus the receivables in a loan / advance
account con note the following essential
features:

 Existence of loan or advance agreement

between the creditor (bank) and debtor (for
details, refer to subsequent unit)

 Repayment obligation of the debtor to repay

the loan / advance, in part or whole, to the
creditor, as per the loan / advance agreement.

 Due date on or after which the obligation is

required to be discharged by the debtor in
favor of the creditor.
“We dream with our eyes open”
 COLLECTING DUE RECEIVABLES

• In terms of the arrangement between the creditor

bank (principal) and the debt recovery agency
(agent), 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.

“We dream with our eyes open”

COLLECTING DUE RECIEVABLES

• Thus the debt recovery agent is legally entitled

to collect the specified receivables from the
debtors on behalf of the principal (creditor
bank), in terms of:

 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
which need to be complied by the recovery
agents are discussed in subsequent units.
“We dream with our eyes open”
 REMITTING COLLECTED FUNDS
• The funds (cheques / drafts / cash) collected from
the debtors would need to be sent / remitted /
deposited by the agent to the creditor (bank)
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 (creditor) be kept on record by the agent, in
chronological order for future referencing.

• These statements of remittances will form the

basis of claiming the agreed fee or commission
by the agent from the principal (bank) in due
course.
“We dream with our eyes open”
 BOOK KEEPING

• While each debt recovery agent may devise his

own accounting and book keeping methods, he
has to take care of the reporting requirements of
the principal.

• Further, bookkeeping has to be segregated and

kept for each principal (bank).

The following would constitute the minimum

requirement of book keeping for a recovery agent

“We dream with our eyes open”

 BOOK KEEPING

Lists of debtors received from the

principal:

 Collection of receivables is an on going activity

of a recovery agent who may receive the
debtor’ lists from the principal (bank) from
time to time.

 The debtors’ lists form the basis of the agent’s

activities and also the book keeping required.
These should therefore be carefully kept on
record in chronological order.

“We dream with our eyes open”

 BOOK KEEPING
Lists of remittances to the principal:

• Ledger account of each debtor showing-

 The amounts of receivable due,

 The amounts of receivable Collected
 The amounts of receivable balance to be collected.

 These details should be kept in chronological

order, preferably on computer.

 Amounts remitted to the principal out of the

collections should also be kept debtor-wise,
showing reference of the remittance date and list
number
“We dream with our eyes open”
 BOOK KEEPING
Copies of loan / advances agreements
between the debtors and the bank.

 A bank is obliged to keep confidentiality of its

customer’s accounts and records and these
should not be divulged to third parties without
the customer’s consent.
 This is the requirement as per the law and also
in terms of the ‘Code of bank’s
commitment to customers’ under the
Banking Codes and Standards Board of India.

 As such, a debt recovery agent must take all

due care to keep the required privacy and
confidentiality as regards the records of each
debtor furnished by the bank (principal ) and
also as regards the collections made and
remitted by“Wehim toourthe
dream with principal.
eyes open”
 DOCUMENTING AND REPORTING
• A debt recovery agent is required to document the
important developments and events in the collection
process, particularly in disputed and difficult cases and
send reports periodically to the principal in terms of the
agency agreement.

• Some banks may require agents to record conversations

they have with the customers during recovery process.

• Further, from accounting angle, the receivables collection

by the agents would be required to be reported periodically
to the principal.

• The account statement would normally show the due

receivable, amount collected and remitted and balance yet
to be collected- debtor-wise.

“We dream with our eyes open”

 RE-POSSESSING SECURITY

• When the debtor refuses to repay the over due loan or

advance, the bank (creditor), in terms of the loan
agreement, can take possession of the security charged to
it by the debtor by way of hypothecation or pledge of
movable assets, and sell the assets without the intervention
of the court.

• Of course, the bank has to follow the legal provisions in this

regard, including giving reasonable notice to the debtor
(owner of the secured assets).

• In cases where the creditor’s security is by way of

mortgage of immovable property, court’s intervention is
required to re-possess and sell the security for adjusting the
outstanding loan.

“We dream with our eyes open”

 INITIATING LEGAL ACTION

• In cases the debtors/ guarantors have means and assets

but are unwilling to repay the loan, the debt recovery
agent can recommend legal action.

• After obtaining instructions / consent of the bank

(principal) the recovery agent would initiate and pursue
legal proceedings on behalf of the bank.

• Availing the legal services of recovery agents is

common for banks / credit companies in UK, where
there are several debt collection firms specializing in
legal action for debt recovery.

• It saves the bank’s time and resources involved in

taking and pursuing legal cases by themselves.

“We dream with our eyes open”

 TRACING DEBTORS

• Debt collecting agencies with nation-wide

presence and large resources and
computerized database also act as tracing
agents of defaulters/ debtors who have
disappeared and are not traceable by the
credit institution.

• Such services save the credit institution

considerable time and money, which is
otherwise spent in trying to track down the
missing debtors.

“We dream with our eyes open”

 COMPILING OPINION REPORTS

• The means and net worth of the principal

debtors / guarantors, who have not paid the dues
for a long period, remains unknown to the lender
for want of information forthcoming from the
defaulters.

• Debt recovery agents can reach the relevant

sources to collect information about their income
and assets, which may be very difficult and
cumbersome for the lender.

• Such information can help the lender to decide

about the feasibility of taking legal action for
recovery against the defaulters.
“We dream with our eyes open”
COMPILING OPINION REPORTS
The sources of information to compile opinion
reports on the means and assets of the
defaulters can be obtained discreetly from:

 Business references
 Bank references
 Credit information agencies
 Chamber of commerce
 Employers
 Credit application forms of the defaulters
submitted to the creditors

“We dream with our eyes open”