How to Start Up a Collection Agency Business
Collection agencies collect unpaid debts for businesses or individuals. The debts usually will consist of overdue accounts, money that is owed and non-sufficient fund checks.
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Instructions
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Starting Your Collection Agency
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As with any business, be sure that you obtain the proper local and state licenses. Additionally, many states regulate collection agencies, so register with the proper state agency. This is usually the financial division of the state in which your are seeking to do business in. Depending on which state you are doing business in, that state agency may require bonding as well. You can usually obtain an bond from an insurance company.
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As a collection agency you will market to companies and individuals. Begin by contacting businesses in your local phone directory. Any business or individual that extends credit to consumers are potential clients. Physician offices, hospitals, stores, travel agencies and banks are a few. A small classified ad in the local newspaper or an advertisement in the phone book are ideal ways of potential clients to locate you as well. Additionally, you may design a brochure describing your service, which you will deliver or mail to potential clients. You'll also need an office or home office, telephone, business cards and office supplies.
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Once you have located and acquired your clients, discuss your fees. Usually this would be a percentage of the debt you are collecting, which is based on the age. You may also choose to collect a percentage, plus your expenses. Typically, fees range from 35 to 50 percent of the amount actually collected from the debtor. This includes whether the full debt was collected or if a settlement was reached. As a general rule, the longer the debt has been due, the higher percentage you charge. For example, if a debt was more than a year old, you would charge around 50 percent. If a debt was less than six months old, you would charge around 35 percent.
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When obtaining your clients, the proper contract must be in place for each debtor and signed by an authorized signer of the company who is now your client. In addition to addressing your fees in the contract, it should also state that the client has assigned the right to collect the debt. Also, that you may take any legal action necessary to collect the debt. Additionally, list that you have the right to settle the debt with the debtor. This includes making a payment arrangement with the debtor if you are unable to collect the debt in full.
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Now that you have your clients in place and have acquired your list of debtors, your primary responsibility is to collect on those accounts. Make initial contact with the debtor, by a simple letter on professional letterhead, stating who you are and your purpose of the letter. After that, call the debtor several days later. Next, send a certified letter referencing the previous contact information is stated in the letter. If the debtor does not respond or agree to settle the debt, you would issue a series of letters to the debtor. These letters may consist of demanding payment, following later with a letter stating that the matter will be settled in small claims court. Last, follow with a letter stating that the delinquency will be reported to the major credit agencies. At this point, you should be able to collect on most of your accounts.
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As a collection agency you must abide by all state and federal laws. These laws include regulations with mailings, phone calls and contact with the debtor. Some of the rules and regulations include the times of day a debt collector may place phone calls and the number of times debtors are called. Additionally, it is important to learn any harassment laws as well. Many states are very strict about debt collection tactics. A collector must adhere to certain steps to abide by the laws. You may wish to consult an attorney to learn the legal aspects of collecting debts.
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Tips & Warnings
Debt collectors must abide by certain rules and regulations. It is important to do proper research and know these rules. Consult an attorney who specializes in collection agencies if necessary.
