Any business owner or manager who has ever made a collections call has done first party collections, whether they realize it or not. First party collections means collecting on your own accounts, so any request for payment by phone, letter or in person qualifies as first party collections.

You’re considered the “first party” because you were involved in the original transaction, while the debtor is known as the “second party.” A “third party” doesn’t enter into it unless you hire a separate debt collection agency.

Third party collections are different from first party collections in a few ways. For one thing, there’s a lag in time from when a bill becomes past due to when a third party collector starts collecting, simply due to the exchange of files. Another difference is that third party collectors don’t have a personal relationship with the debtors, so they may not be cognizant of the need to remain on pleasant terms with them in the hopes of getting future business.

Often the debtor will be more inclined to try to please their original creditor, especially if you have a product or service that he or she needs in order to maintain their business. Sometimes a gentle reminder that you won’t ship any more items until their past due amount is cleared up is enough to get recalcitrant debtors to pay.

Another difference is that unlike third party agencies, first party collections do not fall under the Fair Debt Collection Practices Act. When you are the original party or a legal affiliate of it like a subsidiary, you are considered a lender rather than a collector. Third party agencies therefore do not have as much wiggle room in their practices as first party collections entities due, but the latter are still subject to state and federal law.

The rule of thumb for first party collections no matter what the industry is to keep trying to collect for 2-3 months. When you reach that milestone and haven’t yet collected, it’s typically a good idea to engage an outside agency or sell the debt, which means someone pays you up front for the right to collect on the debts.

In addition, first party collections aren’t very effective unless you have a specialized collections staff. Your sales force, accounting staff or management are not trained collections people and their time is better spent elsewhere while you save collections endeavors for people who know how to perform them.

First party collections done by a dedicated staff is just a more efficient way of handling it. They can take continuing education on collections techniques and perform more collections tasks such as finding people using private investigation, working out creative payment arrangements or disguising collections as audits. First party collections that are operated like third party collections agencies are the most successful.