Debt Collection (Inkasso)
Debt collection is the commercial recovery of receivables owed to, or assigned for collection to, a specialised, typically registered collection service provider, which pursues pre-legal and, where necessary, legal steps to recover overdue payments.
Concept
Debt collection refers to the commercial recovery of receivables that belong to the client or have been assigned to the collector for recovery, carried out by a specialised service provider. In Germany, debt collection services may only be provided by collection agencies registered with the Federal Office of Justice; the registration requirement, along with requirements as to professional competence and professional indemnity insurance, follows from the German Act on Out-of-Court Legal Services (RDG).
Process and Relevance in Trade Credit Insurance
The collection process typically begins with a pre-legal demand for payment to the debtor and, if unsuccessful, can escalate to court-based dunning or litigation proceedings. In trade credit insurance, timely referral of an overdue receivable for collection is frequently a precondition for the insured non-payment event to arise; many credit insurers operate their own or affiliated collection companies, offering debt collection as an integrated part of receivables management.
Practical Note
For companies without their own credit insurance, debt collection is also available as a standalone service, usually remunerated on a success-fee basis. Experience shows that engaging an established collection agency increases a delinquent customer’s willingness to pay without necessarily requiring legal action, while also preserving the underlying business relationship with the debtor.