Kaulkin Report 2022 Edition Selections: The Early History of Debt Collection

Kaulkin Ginsberg believes that every accounts receivable management (ARM) executive should be armed with an acute understanding of the debt collection industry in which they operate, from its long history to the latest trends and developments. To that end, we are putting together an aggregation of our most up-to-date collection agency research in the form of the Kaulkin Report, 2022 Edition. The following blog is an excerpt from the sub-report entitled, “Introduction to Accounts Receivable Management.” To request a copy of the full sub-report – or any of our other Kaulkin Sub-Reports – please contact us here or email hq@kaulkin.com.

Debt collection’s history is as long as the history of trade and basic economics. Even before the propagation of money, lending systems and debt management helped facilitate the bartering economies that dominated civilization in antiquity. The earliest documented evidence of debt recovery extends back to ancient Mesopotamia – the Code of Hammurabi, which famously recorded Babylonian law in the early 18th century BCE, includes provisions that outline debtors’ rights and prohibits collections in certain situations.[1]

In ancient Greek and Roman societies, for example, borrowers experiencing financial difficulties could “choose” to enter debt bondage as an alternative to other, more immediately harmful remedies.[2] In theory, debt slaves would perform physical labor until the original balance was repaid, but additional debts and wage theft often kept them stuck in a never-ending cycle of poverty.[3] To discourage debt bondage, the three Abrahamic faiths – Judaism, Islam, and Christianity – promoted clemency and debt cancellation, implying that God would treat creditors as they had their debtors in the afterlife.[4]

In the West, servitude and execution as a means of collecting debt were gradually phased out as legal institutions strengthened. In the United States, the earliest forms of debt collection arose from the barter system that defined the country’s largely agricultural economy. Farmers frequently paid for goods and services with credit and settled their debts at harvest season.[5] During years when crops were too meager to repay obligations, lenders would use writs of attachment – legal documents that required debtors to secure their respective loans with property – to acquire farmers’ assets through repossession or collection processes.[6] In this way, debt collection became a legal process resolved in courthouses around the country.[7]

The U.S.’s early industrial economy, meanwhile, had cash flow issues that extended well beyond its agricultural predecessor. Balancing cash flows through payables and receivables was a basic responsibility for entrepreneurs and early financial managers of the U.S. economy. While businesses tried to collect independently, they struggled to manage the vastly increasing amount of consumer accounts for which they were responsible. This led to growth in the debt collection – formally referred to as accounts receivable management – industry as credit granters’ needs expanded beyond business-to-business (B2B) interactions to include business-to-consumer (B2C) markets. The development of consumer credit – via installment plans and charge cards utilization – throughout the 20th century accelerated this growth.

Works Cited

[1] “The Code of Hammurabi.” Translated by L. W. King, The Avalon Project, 2008, avalon.law.yale.edu/ancient/hamframe.asp.

[2] “Debt Collection in History – Debt Reform in Greece.” Marcadis Singer, PA, 29 Apr. 2016, marcadislaw.com/debt-collection-history/.

[3] Bhoola, Urmila. “Debt Bondage Remains the Most Prevalent Form of Forced Labour Worldwide – New UN Report.” OHCHR, United Nations Human Rights, 15 Sept. 2016, www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID =20504&LangID=E.

[4] Kilborn, Jason J. “The 5000-Year Circle of Debt Clemency: From Sumer and Babylon to America and Europe.” 2012.

[5] Kagan, Robert A. “The Routinization of Debt Collection: An Essay on Social Change and Conflict in the Courts.” Law & Society Review, vol. 323, no. 18, 1984, https://www.jstor.org/stable/3053428.

[6] “The History of Debt Collection.” McHughes Law Firm, 4 Apr. 2016, www.mchugheslaw.com/the-history-of-debt-collection/. [7] Goodwyn, Lawrence. “The Populist Moment: A Short History of Agrarian Revolt in America.” Oxford University Press, New York, 1978

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