A Guide to the Collection Agency Surety Bond
Written By Mathew Bruns
Without a surety bond, certain companies cannot legally operate in their industry. These bonds work as risk-mitigation tools that act more like credit than insurance. Often, surety bonds are three-party agreements involving a customer, a business and a surety agency. In the instance that the business fails to complete its assigned or contracted duties, the customer is protected from financial loss.
Auto dealers, mortgage brokers and collection agencies need to purchase surety bonds to obtain a license to operate. In the case of bonded collection agencies, the bond curbs the likelihood that an agency will mishandle money accrued while it seeks outstanding debts. If a collection agency mismanages the funds, the company with outstanding debt can file a claim against the surety bond. A valid claim releases the bond and requires the collection agency to pay the company.
For example, an IT training-business hires a Detroit collection agency with a Michigan surety bond to pursue debts owed to the IT company. Instead of living up to its duty, the collection agency bails on the job. Thanks to the surety bond, the IT company is protected against financial harm. The company then files a claim against the bond, and the surety agency deems it a valid claim. As a result, the collection agency must repay the IT company. In case the agency cannot afford to compensate the IT company, the surety will repay the debts.
An un-bonded collector could take money and run. Hiring businesses would have to deal with litigation—which takes time and money—to be repaid by the agency if the ruling goes their way. However, bonded companies get more business because the bond eliminates legal, financial and time-consuming problems.
But in some fields where surety bonds aren’t required, advertising your business as “Licensed and Bonded” attracts customers. They’re given the peace of mind that they will not get cheated out of money. Also, governments look for bonded companies for contract jobs. When a government contracts a bonded company, the government knows taxpayers’ money cannot be misused.
Nevertheless, some business attempt to operate without buying a bond, even if it is required to get an operating license. In order to protect yourself, always search for collection agencies that are bonded.
Without a surety bond, certain companies cannot legally operate in their industry. These bonds work as risk-mitigation tools that act more like credit than insurance. Often, surety bonds are three-party agreements involving a customer, a business and a surety agency. In the instance that the business fails to complete its assigned or contracted duties, the customer is protected from financial loss.
Auto dealers, mortgage brokers and collection agencies need to purchase surety bonds to obtain a license to operate. In the case of bonded collection agencies, the bond curbs the likelihood that an agency will mishandle money accrued while it seeks outstanding debts. If a collection agency mismanages the funds, the company with outstanding debt can file a claim against the surety bond. A valid claim releases the bond and requires the collection agency to pay the company.
For example, an IT training-business hires a Detroit collection agency with a Michigan surety bond to pursue debts owed to the IT company. Instead of living up to its duty, the collection agency bails on the job. Thanks to the surety bond, the IT company is protected against financial harm. The company then files a claim against the bond, and the surety agency deems it a valid claim. As a result, the collection agency must repay the IT company. In case the agency cannot afford to compensate the IT company, the surety will repay the debts.
An un-bonded collector could take money and run. Hiring businesses would have to deal with litigation—which takes time and money—to be repaid by the agency if the ruling goes their way. However, bonded companies get more business because the bond eliminates legal, financial and time-consuming problems.
But in some fields where surety bonds aren’t required, advertising your business as “Licensed and Bonded” attracts customers. They’re given the peace of mind that they will not get cheated out of money. Also, governments look for bonded companies for contract jobs. When a government contracts a bonded company, the government knows taxpayers’ money cannot be misused.
Nevertheless, some business attempt to operate without buying a bond, even if it is required to get an operating license. In order to protect yourself, always search for collection agencies that are bonded.
Good Information... Thanks for sharing.
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Good Information...Thanks for Sharing... Please post in future too. Thanks Again.
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Hey Mathew...
I agree and I'd like to add people should check with references when they get their homes built! I had a contractor that did a bad job...
Chuck in Wisconsin
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Hey Mathew...
I agree about checking for bonded agencies. I also recommend people check references on contractors that build their homes for them. Just got burned.
Chuck in Wisconsin
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I'm not easily impressed. . . but that's impersnsig me!
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Thank you, very interesting site.
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All excellent written
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Yet, much remains unclear.
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