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Collection Agency Business Idea

If you’re good at negotiations and have great office skills, you might be interested in how to start a collection agency. This business venture isn’t for everyone. You’ll need to be able to sympathize with the person who desperately wants to pay their bills, while still being firm with following through on collection efforts.

At times, you will have to track down the person who doesn’t want to be contacted. You’ll also have to follow all of the strict debt collection laws and make sure that no one has the grounds to file a complaint. While doing all of this, you must keep your client, the creditor, satisfied that you are doing your best to collect the amounts owed.

You will need to decide whether you will collect debts on behalf of creditors and charge a commission or buy bad debt at a discount.

How To Start A Collection Agency – Startup Needs

When deciding how to start a collection agency, consider your equipment and supply needs. If you have room for an office inside your home, you can run your business there to start, depending on your local zoning ordinances. Once your contracts are sufficient to hire additional staff, you should lease office space to provide ample room for equipment, employees, and clients.

To begin, you will need computer equipment with basic accounting software, a high-speed internet connection, and a professional-grade printer. Purchase a few filing cabinets to store paper documents in additional to the electronic images that can be stored on your computer.

A good phone system with a professional answering option is also critical. As your business expands, invest in an auto-dialer program to make your collection calls more efficient. You’ll also need a selection of business forms and mailing supplies.

To learn how to start a collection agency, you will need to be properly licensed. All companies require a business license at a minimum. In addition, collection agencies are regulated by the Federal Trade Commission (FTC). Make sure that you obtain all licenses required by both the FTC and your state agencies. You will need good business management skills and expert knowledge about the Fair Debt Collection Practices Act.

Most states have additional laws about collecting debts that you will be required to comply with. While you’re learning the ropes, don’t forget to purchase a good general liability insurance policy and a workman’s compensation policy.

Another consideration when thinking about how to start a collection agency is professional services. While it may cost a little extra, you should consider hiring an accountant to make sure that you are operating according to accepted accounting principles in the event of an audit.

Legal services would be another good idea. While you may not need their help on a regular basis, credit and debt collection laws can be interpreted differently. Expert advice could save you a lot of time and trouble by keeping you outside of the courtroom.

Finding Clients For Your Agency

After you’ve learned everything that you need to know about how to start a collection agency, it’s time to find clients. You might be surprised by how many people will use your services if they know what you’re doing. While a big corporate contract could keep you busy for years, don’t neglect small businesses or sole proprietorships.

While larger companies will have a staff to collect unpaid debts, smaller companies and individuals won’t have the time or desire to go after their customers. They probably know them on a personal level and find it a distasteful process. This is where you come in. To find these smaller businesses, you could make cold sales calls. Another way would be to go to your local business licensing agency from time to time and get a list of new business owners. A targeted mailing could bring in as much business as you can handle.

Once you’re running a successful agency, it will be time to expand. You could offer to take over your customer’s invoicing functions or sales calls in addition to their debt collections. If you find that you’re good at tracking people down, you could branch out into private investigations or bail bonds. Creative financing or debt restructuring for the debtors that you are calling could be another expansion idea.

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