Her Majesties Revenue and Customs (HMRC) will turn to debt collection agencies to chase down late payers, it was revealed yesterday.

HMRC will being the process this week of writing to selected businesses and individuals telling them that a debt recovery company will be appointed to collect the debt if they fail to settle the bill.

A spokesman said: “We have identified a number of potential debt packages to trial. These cover a range of types of tax, sizes and ages of debt, and include both individual and business debtors.”

During the six month trial, debt collection firms will be permitted to telephone and write to debtors, but will not be able to pay visits or begin litigation work.

The move follows the lead of the Department for Work and Pensions, amongst other departments, who already utilise debt collection agencies.

The Office of Fair Trading has recently confirmed that it will be looking to update its debt collection guidance later this year. Speaking at the Managing Consumer Debt conference, David Phillpot from the Office of Fair Trading confirmed that plans are underway to update the guidance of the debt collection industry later this year.

The reasons behind the update is to take account of debt purchasing guidelines and the best practice over collections management.

The debt collection sector has some pressing issues to face following accusations of consumer claims that some companies chased the wrong individuals, refused to investigate disputed debts and bypassed third party representatives, such as debt management companies. Obviously, a lot of accusations are unfounded and tend to originate from serial debtors who simply will try to find an excuse to not pay their bills.

The Office of Fair Trading claim that these problems will be dealt with and that it would communicate with debt collection agencies through credit trade associations to ensure that all debt recovery agencies received the updated guidelines.

Mr Philpott denied that the new guidelines would create unnecessary burdens on the debt collection sector, adding: “We will take effective action against businesses that harm or may harm consumers but we also want to establish close links with businesses and consumer representatives to ensure constructive dialogue.”

As more and more debts are incurred during this economic downturn, debt collection agencies are using more creative and advanced means of technology in their pursuit of debtors.

John Nemo, spokesman for the Association of Credit and Collection Professionals International, which represent industry members in the US, Canada and around the World said “I think it is an industry that is always on the cutting edge of information technology. The industry is always looking for the newest, latest, greatest way to track down the right person.”

Moving further than phone calls and letters, debt collection agencies have also started to make use of websites such as Facebook, MySpace and Craigslist in an attempt to track down people who have not paid their bills. Craigslist shows phone numbers and email addresses, Facebook a plethora of information about family members and other contact information.

By using such tools in a legal, and ethical manner, debt recovery companies are able to trace more effectively and efficiently and, as a result, potentially have a quicker turnaround on the collection of a debt from when it is passed to them.

Databases also play a big part in the debt collection industry with debtor profiling taking a front seat in collection agencies as firms attempt to use statistical data to focus on collection from those more likely to pay. Demographics, socioeconomic data and historical information are all analysed to help predict where collection agencies should focus their attention.

A famous movie once opened with the line “in a galaxy far, far away,” – perhaps that galaxy is now a lot closer than people realise.

According to a report by the National Audit Office, the Department for Work and Pensions is continuing to make a mess over benefit overpayments.

While the DWP is still on track to meet its targets, the debt recovery of overpayments from £180m in ’05-’06 to £272m in ’07-’08, overpayments in ’07-’08 were £558m which means an overall debt increase of 7% from £1.67bn to £1.8bn.

The report found that while £3 is recovered  for every £1 spent on debt recovery, the DWP is restricted in what it can take from claimants under Social Security legislation and it also has major problem in tracing people who are no longer receiving benefits.

The National Audit Office also said that the DWP needed to make more efforts in encouraging people to inform them of a change of circumstances, utilising new technologies, such as texting as a means of gathering such information. the NAO also recommended that Income and Expenditure reports be analysed when negotiating payment plans for repayment, as well as better monitoring of debt collection practices.

NAO head Tim Burr said: “The department has improved the effectiveness of its debt management operations. The amount of cash recovered is increasing, but so is the amount tied up in debt, [because] recoveries are not keeping pace with the growth in identified overpayments. Helping more customers stay out of debt will need to be an important part of the answer.”

However, Steve Webb, Lib Dem shadow Work and Pensions Secretary was less enthusiastic, citing the Government’s record on benefit overpayments as “appalling,” particularly as so much is down to official error.

“The benefits system is crucial to help people in a recession. It cannot afford to lose money because of poor administration,” Webb said. “The benefits system needs to be much simpler, not least so officials can understand it properly.”