Why do you want to start a collection agency? Are you a bill collector? Think about the reasons why you want to start a collection agency for a minute. I never planned to be a bill collector; I fell into it through a job as an accounts receivable clerk. I found I was really good at debt collection and I enjoyed the work so I kept at it by learning all I could to be the best. I eventually started my own collection agency from home and grew my business and ran the agency for 8 years until selling it to write full time.
A collection agency is a service business that other businesses use, or outsource to, any customers that are not paying on time or not paying at all. They will also use them if they receive bad checks from customers and don’t know how to go about collecting on them. A collection agency collects the money that you are not getting from your customers. They keep a commission on what they collect and send you the rest.
Most collection agencies work on a contingency or commission basis. I have always liked this arrangement because how much money you collect is based on how well you do your job, a win win situation. You win because you become very good at your job and it shows in how much money you collect, therefore bringing you more business and more money. Your clients love it because you are sending them money they would have otherwise never collected.
If you are thinking about starting your own collection agency you have to decide if you want to start it from home or from an office, you will need basic office equipment including one or more computers and a printer. You would need to be knowledgeable with the Fair Debt Collection Practices Act, have a business and marketing plan, debt collection software, postage meter and/or letter folders, depending on what you will do in house and what you will outsource.
Going back to the Fair Debt Collection Practices Act, this is your rule book and there may also be other laws in your state regarding debt collection that you must follow in addition to the FDCPA. Never pick up the phone or send a collection letter without triple checking everything such as any laws on what must be included in a letter, what time you can and cannot call a debtor, what you can and cannot say and much more.
When you are starting a collection agency you have to think about who your customers might be.Your clients can be any business that extends credit to their customers or who accept payment by check.Credit card companies, such as department store cards, gasoline cards, and others.Anyone who lets a customer leave their store with a product without paying at that moment can use a collection agency.
To build a customer base you can make cold calls to the businesses in your area. You can look through the want ads in the newspaper and find out which businesses are looking for people in their accounts receivable or credit department, this could show a need for your services. Join your local chamber of commerce and/or rotary club, do business locally and become the “go-to” agency locally and you will get recognized nationally and your business will grow.
When you are trying to figure out what to charge for your collection services, you have to check out what other agencies in your area are charging. Visit their websites, request their information, make sure you know what they offer for the price, many agencies offer many different types of services and some are included in the commission while some are an additional fee. Also remember that the older an account is the harder it is to collect, you might consider charging a higher commission rate on older accounts. Keep in mind what your overhead will be each month before you set your prices.
If you are thinking about starting a collection agency you may have some debt collection experience. You may already know the most effective ways to encourage people to pay their bills. The most effective way to encourage someone to pay a bill begins with the creditor, or the business owner the customer is dealing with. If they had to fill out paperwork and be credit approved before being allowed to walk out of the store without paying, they are a little more likely to pay their bill. When I had my agency most creditors did not do this, so many of the accounts I was trying to collect on really did not think I was serious or that the creditor was serious. The most effective ways I have found to help collections move right along are:
- Collecting in person
- Collecting by phone
- Collection letters
I have to add that none of the above steps work without the most effective collection tool which is to FOLLOW UP!