Small Business 101: How To Start A Collection Agency


When people hear the words, “collections agency,” they have pretty strong reactions. They usually think of a boiler room atmosphere of people using unscrupulous means to get collect on a debt.

There are a lot of financial opportunities there. About 80% of Americans have some type of debt. Mortgages, student loans, credit cards, and medical bills are the most common.

There’s an increased chance that some will default and require a collections agency to step in and collect the debt.

Stay tuned to find out how to start a collection agency that thrives.

Understand the Industry

Starting a collections agency requires a specific set of knowledge. Over time, the industry developed a bad reputation for collection on outstanding debt. This led to regulations at the state and federal level.

At the federal level, the Fair Debt Collection Practices Act is the main law that limits what you can say or do to collect a debt.

Each state has its own laws that govern debt collection practices, such as garnishing wages to repay a debt. You need to know what you can do and what you can’t do to collect a debt and stay within the law.

You need to be aware of licensing requirements to collect on debts in each state where you do business. New Jersey requires that you submit a Collection Agency Bond Application and file a $5,000 bond with the state’s Department of Revenue.

Identify Target Market

 Do you have a particular niche that you’d like to work with? For example, will you work with small businesses in your local area?

Another possible target market is to work with the health industry to collect on a medical debt. Many families find themselves in a position where they can’t pay the doctors or hospitals for their medical bills.

No matter what industry or niche you work with, you need to make sure that you understand what their key issues are when it comes to collecting on debts.

For example, for small businesses, late or non-payments can be damaging to businesses due to the lack of cash flow. You can incorporate that in your marketing messages.

What’s Your Revenue Model?

When you learn how to start a collection agency, your primary objective is to build a profitable business. You need to figure out how you’ll make money from your collections business.

There are two ways to collect a debt and make money. The first is that you can work with a business to collect on a debt that is less than 90 days old and get a percentage of what’s collected.

The reason why you want to work on a debt less than 90 days old is that you have a much better chance of collecting the debt.

The second way you can make money is to purchase debts from businesses for pennies on the dollar. For example, someone might have a credit card debt of $1,000. That credit card company will charge off that loss and sell that debt to you for $100.

You can collect on that debt and make more than $100 back.

In either case, you don’t get paid unless you collect on a debt.

Check out the Competition

Who are the other collections companies that you’re up against?

Keep in mind that many collections agencies work in a number of states, so you’ll have to start looking outside of your local area.

You can start by checking out collection agencies online. You’ll want to know who they target, what their marketing messages are, what they charge, and what their collections rates are.

You can read these reviews and compare prices here to start with.

Hiring Your Team

Starting a successful collection agency largely depends on the team that you hire. You have to put your pride aside and realize that you’re not an expert in everything. Trying to do everything yourself is noble, but you’re only going to burn yourself out in the end.

The key players you’ll need on your team to start with are a business or tax attorney, who can advise you on setting up the legal structure of the business and the tax implications of certain structures.

You definitely need an accountant who can make sure you’re setting aside enough money to pay federal, state, and local taxes.

You also want to make sure that you’re hiring the right collections agents for the job. It’s a stressful job, and not everyone is well-suited to this type of work. Ideally, you want someone who is

Company Culture

Collection agents have a hard job. They have to collect on outstanding debts, and people on the other end of the phone will yell and scream at them all day long. This can turn into a toxic environment with low employee morale and low productivity due to sick days.

You can set the tone at your company and create a culture where your agents are valued for the work that they do. Having regular meetings with your team to help them understand the mission and values of the company is also key.

When your employees are working towards a common purpose or goal, they feel like they’re making a contribution to the company. That’s often just as important as collecting a paycheck.

Marketing Your Business

 How will you go about getting clients to work with?

Once you have the foundation in place, you need customers to work with. There are dozens of ways that you can market your business. You can use a mix of digital marketing and offline marketing strategies.

Calling on banks or small businesses while using SEO tools to boost your search rankings is an effective way to market your business.

How to Start a Collection Agency

Are you ready to start a business?

How to start a collections agency starts with knowing the laws and regulations in your state and at the federal level. You can then pick out your target market and hire your team.

Want to know more about starting a business? Read this article that will show you how to make your business grow.


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