Your Own Recession-Proof Business Collection Service
A collection agency is a business that collect bills, NSF (non
Sufficient Fund) checks or debts for individuals or other
One type of collection agency merely collects funds WHEN DUE on
behalf of an absentee owner or company; the other specializes in
collecting overdue accounts-- those the debtors apparently do not
intend to pay. The former is the easiest, but doesn't pay as well
as the latter because there is less work and more competition.
The second type is the most lucrative to the entrepreneur. If you
are one of those who isn't comfortable being a "nice guy" all the
time, this could be it! A collection agency is a business that
offers a good income with hardly any investment and minimal
direct public contact.
Every locality needs a good collection agency. There are people
who simply won't pay their bills unless and until they believe
they must. The companies owed haven't the time, expertise or
determination to collect from people who don't pay their bills
Often the company person responsible for collecting overdue
accounts has other responsibilities that require a sunny
disposition and the customer-is-always-right attitude.
In fact, most who are appointed to this position are former
clerks who are simply asked to start collecting overdue accounts.
Sometimes a clerk is simply given this duty as an additional
responsibility. These people seldom make good collectors.
Individual companies usually soon become frustrated and willingly
turn their delinquent accounts over to a lawyer or collection
agency. In either case they will then get back only a part of the
original debt, if anything at all.
Their only other choice is to forget (therefore, forgive) the
debt, which encourages the non-payers to continue their practices
-- and perhaps even tell their friends.
Since a collection agency specializes in the collection of
legitimate debts and is so much concerned with keeping a "nice
guy" image, they are more successful
They have a collection plan: a series of letters and/or phone
calls, each a little more demanding; they can go to small claims
court, contact the district or county attorney, or forward
information to credit agencies in the area.
In practice, most agencies have a varied approach, such as the
initial notification by an official looking letter. This is
followed in a few days by a phone call, and then a registered or
certified letter referencing the first two contacts. Next, there
may be a personal visit by a representative to try and "save
They learn to use every legal means of collecting delinquent
accounts and usually collect at least part of most accounts.
Financially, they do quite well -- their fees average about half
of the money they collect. Interestingly, the collection agency
receives its share first, because they do the collecting.
Potential customers are any business or individual that gives
credit; the drug store, dentist, travel bureau, even bank and
lawyers (very few lawyers handle collections).
Don't overlook the private sector (just be sure the debt is
legitimate). Maintaining a small ad in the paper (better still,
the phone book) is a good way to keep your name handy for those
who discover they have overdue or "uncollectible" (to them)
accounts on their books.
A quick review of the situation should tell you if the debt is
legitimate and a good prospect for you. You need a signed
contract for every debt. The contract authorizes you to collect
the debt and to take whatever legal actions that may become
necessary to do that. Your contract should make provisions for
lawsuits -- that is, you will recommend when such action should
be taken, but will do so only at the direction of the client (he
is responsible for the cost). The written and signed contract
also serves as your proof that the debt is legitimate.
The first step in starting a collection agency is consult a
lawyer to learn the legal do's and don'ts in your state (this is
There are federal controls and harassment laws in many (some are
quite stringent) states concerning things like what time of the
day calls can be made, which statements and representatives can
or cannot be made legally, which information you must treat as
confidential, plus any special steps a collector must take in
your state to avoid being liable.
You must be aware of ALL the rules because some of those habitual
delinquents are EXPERTS! While at the lawyer's office, have him
recommend contract working about fees and your legal appointment
as the agent for the specified debt collection, including
authorization to use your best judgement in settling the debt.
Collection agencies routinely have the right to reach an
agreement with the debtor for a settlement when they believe it
is the best thing for the client (something is better than
noting). The experienced collection agent can recognize
situations where settlement is the only practical answer, and
most clients understand this. In this case, the collection agent
also serves as an arbitrator. A tip for the lawyer's office: It
is usually cheaper for a lawyer to "look over" an existing
contract than to write an original. Therefore you should write
(or obtain) a contract that sounds good to you then ask the
lawyer to look it over. They will still charge a fee for their
time and expertise, but it is usually much lower than if they had
to start from "scratch."
If you draft a contract that the lawyer edits and the fee ends up
being half of what it would have been you if he (or his
secretary) drafted it -- they, you and the lawyer have split the
fee (you made as much as he did).
Your collection fee is usually a fixed percentage of the amount
collected, the actual percentage varies with the age of the debt
and the debtor's availability.
It can also be a percentage plus expenses, if they are out of the
ordinary (make these arrangements in advance). Collection fees
normally range from 35 to 50 percent of the amount collected,
regardless of whether all the debt is collect, or if there is a
settlement.. The lower percentage is for debts less than six
months in arrears and the highest for those over a year overdue.
You will need an office (at least a telephone, desk and files),
business cards, and advertisements in the paper and phone book
Have brochures that describe your service and ask interested
parties to contact you for consultation at their convenience.
Mail or distribute (in person whenever possible) your brochures
in your area.
Arrange with the Chamber of commerce to when new businesses open,
so you can stop by and meet them and leave a brochure.. Contact
all local credit bureaus that are not also collection agencies
and offer to work with them -- they could be a valuable referral
source. Call on as many individual businesses IN PERSON As
possible to explain first hand, your services and answer their
questions. Always leave your card or brochure.
Later on, when you have enough business, you can hire someone on
a commission basis,, to solicit accounts for your service.
If you feel some experience in this area would be good, try
soliciting collection accounts for local or mail order collection
agencies -- or get a job with an agency making collection calls
by phone.. A few weeks of this type of experience would be
equivalent to a fairly expensive school.
a variation or sideline of the collection business could be a
repossession service. In fact, your contract and licenses may
cover both.. Actual recover a vehicle on a commission basis;
another with a truck up large appliance.
Check with banks, finance companies, furniture and appliance
companies -- especially the small ones who are not likely to have
their own means of repossession. It may also be possible to offer
a credit referral service, but ask your lawyer first about what
information you are allowed to divulge and under what
circumstances in your state.
We get pretty mad when someone owes us money, but we must
remember that debtors have rights too and that not all lenders
are totally honest either.
Tip: Consider having your business cards printed either on
Rolodex stock (fairly expensive), or getting a rolodex type
cutter that you can use to notch your cards. Then, put an
attention getting line,logo or color on the top of the card to
attract attention. When secretaries put these cards on their
Rolodex files, your card will "pop out" at them.
The major potential problem area in this business is violating
the law. Most people who get behind in their payments are
law-bidding citizens who are truly sorry they haven't paid. It is
very easy for a collector to go beyond the law with them and they
However,, all it takes is one to document your illegal actions
and you are in trouble! For example, in some states it is illegal
to dun the debtor after he officially advises the collector to
stop calling or sue.
The way to avoid this problem is to follow the previous advice
about checking with a good lawyer on just what is not legal in
your state currently. By doing so, you can reap the benefits of a
good business without suffering needless losses. The bottom line
is that debtors are legally responsible to pay debts they incur
and that lenders are allowed to appoint representatives to
collect those debts if they are not paid in accordance with the
In most cases, the merchant who gives credit oriented to selling
-- not collecting. This creates a need (opportunity) for someone
willing to specialize in collecting overdue accounts. Is that
BUSINESS SOURCES, 781 W. Oakland Park Blvd.,Ft Lauderdale, FL
33311. Sells a "course" in debt collecting for $60, which is
refund if you become one of their agents and send a minimum
amount of contracts. The agents solicit collection accounts; the
company does all the collecting (by long distance telephone).
Caution advised with this one.
MORGAN CURTIS ASSOCIATES, 95 Broadway, Hicksville, NY 11801.
Offers training to set up a collection agency.
NATIONAL BOND & COLLECTION, 150 Wells St.,Wiles-Barre, PA 18703,
717/287-6023. Wants agents to solicit accounts for their company
to collect by phone.. Probably good opportunity for people in
METROPOLITAN FINANCE, 11298-187 W 41st St.,Kansas City, MO 64111.
Wants agents to solicit accounts for collection on commission
basis. Kit - $3.
QUILL CORPORATION, 100 Schelter Rd.,Lincolnshire, IL 60917-4700,
312/634-4800. Office and computer supplies.
ZPS, Box 581, Libertyville, IL 60048-2556. Business cards (raised
print - low prices) and letterhead stationery. Will print your
copy ready logo or design, even whole card.
WALTER DRAKE, 4119 Drake Bldg.,Colorado Springs, CO 80940. Short
run business cards and stationery. No choice of color or style,
but good quality.
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