How To Start a Collection Agency

How To Start a Collection Agency

No matter how negative people see a collection agency, this industry contributes to the economy. Collection agencies allow lenders to extend the credit of their clients. In return, collection agencies guarantee the collection of debts. 

As the collection agency owner, you can have payments as high as 25% to 50% of the amount of debts you collect. Imagine how much you can get if you collect a USD 300,000 debt. What’s more, you can start your business in the comfort of your own home, and work in your own time. 

However, there are things you need to do when starting a collection agency business. Here’s how to start a collection agency of your own: 

#1. Understand Debt Collection Laws

Before planning out your collection agency business, you first need to study debt collection laws. Not only will this help you understand how to run your agency, but you’ll get to feel whether a debt collection agency is right for you. Since the debt collection laws govern your every move, you can protect your business from lawsuits by learning these laws well. 

Thus, you must learn by heart the Fair Debt Collection Practices Act (FDCPA), which governs collection agencies when it comes to how, when, and where to collect debts.

In a nutshell, the FDCPA prohibits you from collecting debts beyond 9 PM and before 8 AM. When calling, the law restraints you from attempting to contact debtors at their workplace if the latter has not allowed it. Most importantly, the FDCPA doesn’t allow you to collect debts using threats, insults, and obscenities, as well as discussing it with the debtor’s friends and family.

Lastly, you should verify the specific amount of debt and from what lender the debtor is owed to. Without such, you must end your collecting process. 

If by any chance you violate any of the prohibited acts encompassed by debt collection laws, expect a lawsuit. 

#2. Comply With The Legal Requirements

Although the FDCPA is a federal law, every state has its own legal requirements in opening a collection agency. You cannot just rent a place, advertise your collection agency, and collect debts. First, you’ll have to comply with your state’s requirements. 

For some states, you may need to apply for a state tax ID number, while other states only require you to register your business. Other states even require you to pass a test to get your collection agency licenses. Moreover, you may need to open a trust or bonding accountability, and other insurances. Without these legal requirements, your business can face liabilities. 

#3. Create Your Business Plan

Now that you know what laws and requirements your collection agency needs to comply with, it’s time to write down your business plans. By doing so, you’ll have a guide on how to operate your business, and weigh whether you’re achieving your end goal or not. In addition, a well-written business plan is useful to entice financial investors or lenders. 

Here’s how you can write a business plan for your collection agency:

  • First, you need to establish the purpose or objective of your collection agency. This purpose will become your direction or road map.
  • Next is to develop a company profile in which you’ll state how your collection agency can help creditors. Here, you must include your resources, as well as your edge over your competitors. 
  • Then, you should also lay out your strategic marketing plan. In this part, you’ll state how you’ll achieve your goals, how you can successfully collect debts, and how you can enter into contracts with your clients. There’s no limit to the number of objectives you can have as long as each one has an accompanying marketing plan. This includes your financial data, especially how you’ll manage your collection agency’s finances. 
  • Lastly, you’ll want to encourage your investors by showing why you care both for your clients’ and debtors’ interests. You must also describe your collection agency’s values. That way, you can show how passionate you are with your collection agency business. 

#4. Find A Mentor

Above anything else, you’ll need a mentor for your collection agency, especially if you’re a startup. A mentor can guide and help you grow your collection agency business. With their experience in handling a collection agency, you can learn a lot from their mistakes, as well as their successes. They can give you tips in building your business, too. 

Although you can learn a lot from books and tutorials, mentors have more insights based on their experience, some of which you won’t find in books. Not only can you gain knowledge on how to operate a collection agency, but you can also build a network of people, who may become your clients or investors in the future.

Another vital role a mentor has is to keep you motivated and inspired when you want to give up. Since they’ve been there and done that, they’ll help you stay focused and show you how to continue. Their moral support will be valuable when you’re having a hard time operating your collection agency.


Now, you won’t have to start from scratch building your collection agency. All the tips above are essential before you can operate this type of business. From learning about debt collection laws to complying with your state’s legal requirements, you’re more likely to avoid any lawsuit or liabilities. Then, you can create a business plan that’s geared towards a successful collection agency. Moreover, struggling with the initial birth pangs of putting up your collection agency will become more bearable if you get yourself a mentor.