Business Overview


As the owner of a debt collection agency you’ll contact debtors and work with them to figure out a way of paying what they owe your clients. You’ll maintain a calm, patient demeanor and make the process as fair and stress-free as possible.

Who is this business right for?

You must be able to persevere and take rejection well. You’ll often find yourself in uncomfortable positions in contacting individuals who owe money and don’t want to pay. They might be hostile, embarrassed, frightened, or unwilling to talk to you at all, but you can’t be defeated by all of the negative attitudes you’ll encounter.

You should also have the sales ability to gain the trust and confidence of clients.

What happens during a typical day at a debt collection agency?

Here are several of the responsibilities you’ll most typically undertake on a daily basis.

  • Soliciting the debt collection business of companies who’ve extended credit to customers
  • Contacting debtors to encourage repayment on behalf of your business clients
  • Performing skip trace investigations to find debtors with little or no valid contact information
  • Collecting debtor payments and returning extended credit amounts (minus your commissions) to clients

What is the target market?

Any business that sells to other businesses or individuals by extending credit will have its share of non collectable debt. The company’s own credit department might be overextended or not adept at collecting challenging debt, and that’s when a collection agency like yours gets the call.

How does a debt collection agency make money?

You’ll charge your business customers a commission as a percentage of the financial amount you’re able to collect. This will be a smaller percentage for newer and easier to collect debts and a higher amount for old or particularly challenging debts or those that have unsuccessfully been worked by multiple collection agencies in the past.

What is the growth potential for a debt collection agency?

Businesses will always find themselves in positions where customers who’ve been extended credit are unable or unwilling to pay back. The most challenging of economic times will bring you more opportunities, but on the other hand hard times are when debtors are least likely to be able to repay.

The U.S. Bureau of Labor Statistics forecasts a six percent decline in the job outlook for Bill and Account Collectors between the years 2014 and 2024, but that could change if there’s an economic downturn.

Getting Started


What are some skills and experiences that will help you build a successful debt collection agency?

Can you be both firm and diplomatic? If you come on too strong with debtors they’ll hang up or slam the door in your face. On the other hand if you seem weak those who owe money might ignore or try to intimidate you. You’ll be most successful at this business if you can maintain a sense of equilibrium even during the most stressful times

You should also be a good judge of character. This will help you not only while you negotiate payments but as you begin to interview prospective debt collectors when you build your business.

What are the costs involved in opening a debt collection agency?

The good news is that there’s very little upfront cost. This is the sort of business that can be started from your home with basically only a phone, business cards, and a computer. But let’s take a closer look at materials you may need if your business expands beyond a home-based operation:

  • Office rent -- Zero to $500 a month in many locations. Your clients and debtors won’t often, if ever, visit you in your office, so you don’t have to impress. All you need is space big enough for a desk and a computer. If you have a spare bedroom or a kitchen table at home it’s enough to get you started, though you will likely want to upgrade to a more professional environment once you can afford it.
  • Office equipment -- $1,500 max. This is for a desk and chair, a computer, and a phone.
  • Transportation -- $200 at most. Most of your business will be conducted by phone, but you might use a car to meet with debtors face to face, to pitch business to a client or to attend a networking event.
  • Logo, website and marketing tools -- $200 or more. Hire a graphic design to design a logo for your business cards and letterhead and the appearance of your website. Your digital presence can be minimal, but make sure clients can figure out how to contact you.
  • Legal, licensure and insurance -- A few thousand dollars. You do have to be licensed and bonded in most states, but the specifics vary greatly. Start by consulting this online guide to licensing requirements by state. And then meet with an attorney before you start, to make sure your agency is in good legal standing.
  • Association membership fees -- A few hundred dollars a year. Consider joining such industry associations as the Association of Credit and Collection Professionals, the National Association of Credit Management or the American Recovery Association. Also consider joining the chamber of commerce in your community or other business associations where you might meet clients.

What are the steps to start a debt collection agency?

Once you're ready to start your debt collection agency, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:

  1. Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
  2. Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your debt collection agency is sued.
  3. Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
  4. Open a business bank account. A dedicated checking account for your debt collection agency keeps your finances organized and makes your business appear more professional to your customers.
  5. Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
  6. Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
  7. Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
  8. Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
  9. Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.

Select your state below for an in-depth guide on completing each of these steps in your home state.

Where can I find a business mentor?

One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.

Having a support network in place to turn to during tough times is a major factor of success for new business owners.

Recommended: Fizzle.co offers video courses and a supportive online community of like-minded entrepreneurs. Try one month membership for for free.

What are some insider tips for jump starting a debt collection agency?

Do your homework. The Fair Debt Collections Practices Act sets the stage for what collection agencies can and can’t do legally. Your state might have additional laws and regulations, so make sure you’re in compliance with those as well.

As for generating clients, you might start by cold calling the credit departments of leading credit-extending companies in your marketing area. You can also buy charged-off debt online. This strategy is a bit of a gamble since these are transactions that other agencies have given up on. As a result, the debt can be obtained for pennies on the dollar, but the collection process will be arduous and often a losing battle.

Growing Your Business


How to promote & market a debt collection agency

Your most effective tool will be your persuasiveness -- the same tool you’ll use to gain payment from debtors. Pitching business on the phone or face to face at networking events will often be your best means of promoting your business.

Recommended: Get started with local advertising for your business with a $300 credit from Yelp.

How to keep customers coming back

Once you’ve made customer contact and persuaded them to let you attempt to close a debt, your success in that area will bring in more business. Companies can quickly assume that debt is dead, so it can seem like found money if they get back 70 percent of what they were never expecting to see in the first place.

How and when to build a team

You can hire debt collecting staff at little cost by adopting a commission-based payment model. Therefore, consider making a hire anytime you see someone who looks like they have the right personality to chase down debt.

Legal Considerations


State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a debt collection agency. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, check out our informative guide, Sales Tax for Small Businesses.

For information about local licenses and permits:

Reduce Personal Liability

Structuring your business as a limited liability company (LLC) ensures your personal assets are protected in the event your business is sued.

What is an LLC?

Form an LLC in 5 easy steps

Earning Potential


How much can you charge customers?

You’ll negotiate the percentage of the debt you collect, based on the degree of difficulty. Keep in mind, you’ll get nothing unless you collect, so you must negotiate a high percentage (even as much as 50-70 percent of the total) when collection is in doubt because of the age of the transaction, the absence of valid contact information or the failure of other agencies before you. Debt that is fresher, on the other hand, might make you a commission as low as 18 percent of the total amount for the relatively small degree of risk. Your bottom line success will be in charging a commission that’s as high as you can get without making your seek a better deal with competitors.

Some collection agencies charge by a monthly fee, but that’s difficult to get clients to agree to since there’s no guarantee of collection.

What are the ongoing expenses for a debt collection agency?

Phone, Internet and transportation are generally your main ongoing obligations. You’ll also need to make enough or have enough in savings to meet your day-to-day financial demands until your business is able to break even.

How much profit can a debt collection agency make?

That’s highly variable. According to the U.S. Bureau of Labor Statistics, the median pay for debt collectors was about $17.00 an hour, but that was for a single individual -- not someone who owns a business and could employ several collectors.

How can you make your business more profitable?

Consider expanding into other areas where you can use your talent for finding and contacting individuals, such as by offering private detective services or skip tracing for bail bondsmen.

Next Steps

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