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Debt Collection Agency or Debt Management Company – What’s the Difference?

A Debt Management Company (DMC) is an organisation that represents an individual in managing his or her debt.  These companies may be fee-charging or free, businesses or charities.  Typically a DMC will negotiate with creditors (lenders) in order to secure an affordable repayment solution by either reducing the total owed by the person or by agreeing on sustainable monthly repayments for their customers.  A DMC should offer a wide range of solutions and should use their knowledge and expertise to recommend the best solution for each individual customer. 

A DMC may negotiate a Debt Management Plan  (DMP) – a fixed term agreement designed to help customers to reduce and eventually eliminate their debt.  DMCs that charge a fee expect this cost to be met by the customer and the fee is sometimes quite costly.  This fee, naturally, adds to the total cost of the money owed and prolongs the time it takes to clear the debt.  While there is a “free” DMC sector, this is generally funded through charitable contributions by the creditor and all sums paid by the customer go exclusively towards repaying their debt.

A Debt Collection Agency (DCA) is an organisation that collects monies owed on behalf of a third party client (very often banks, buildings societies, credit card companies, utilities, mail order companies, mobile phone providers, etc.).  These DCAs operate for a fee or for a percentage of the total amount collected which they receive from the creditor, not the customer.  Some DCAs operate on a “no win, no fee” basis which can make this an attractive solution for small businesses here in the UK.

The DCA will contact the customer and inform them of the amount due and attempt to set up an affordable repayment plan or the DCA may determine that the customer is genuinely unable to repay the debt.  If the customer needs help and advice with paying the debt, the DCA will be able to refer them to free debt advice and the customer may then opt for the services of a DMC as the best solution.  In such cases, the DCA will receive proposals from the DMC or free debt advice organisation and work with them in order to agree upon a suitable debt management plan or a settlement figure on behalf of the customer.

Here in the UK, the trade body for the debt collection industry is the Credit Services Association (CSA) and it represents DCAs, but not DMCs.  The CSA was founded back in 1902 and has more than 400 members, representing 90% of the industry.  The global organisation representing DCAs is the Association of Credit and Collection Professionals (ACA International) which was founded in 1939 and brings together third party collection agencies, law firms, asset buying companies, creditors and vendors.  ACA establishes ethical standards, produces a wide variety of products, services and publications and promotes the value of the credit and collection industry to policy makers, businesses and consumers.