How to Start Debt Collection Business

Debt Collection Business is challenging but highly rewarding

If you have experience in credit and debt collection, starting your own debt collection business may be a step in the right direction. In any credit economy, there will always be a need for the service of debt collectors. Even for businesses that are cash driven, there will be situations that will warrant that the owner of the business need to sell on credit. If his competitors are selling on credit and he refuses to follow suit, it may not be too long before he realises that some of his customers have moved to where they can enjoy credits. When someone sells on credit, there is a risk that some customers may not pay back. Also, there are institutions and organizations such as banks and insurance companies that one of their core businesses is lending. They lend money to several people but at times they find it difficult to collect the money back from their customers. The situation is even worse during economic downturns. During economic downturns, both individuals and organizations are equally affected. You see a situation where individual borrows money and thereafter suddenly loses his job. To pay his debts will now be a problem.  It happens to businesses too. A business may project that it will win a contract or that customers will pay at a particular time frame. Unfortunately, the contract may not be forthcoming and the debtors may not be able to pay. These types of situations are making debts profile to be on the increase day by day. However, for every challenge, entrepreneurs always see opportunities. If you see the rise of debts in the economy as an opportunity, then you will agree that it is the right time to start a debt collection business.

Debt collection business, as the name implies,  involves collection of debts from the consumers or debtors on behalf of clients. Your clients will pay you commission at an agreed rate on every collection you make on their behalf. There is no specific rate for debt collection but the rate can range between fifteen and thirty percent. Before you agree a particular rate, you need to consider many factors. The factors you need to consider include; the amount and the ageing of the debts involved among others.  Before we get to how much you can make as a debt collector, let quickly discuss how you can start your own debt collection agency.

Acquire Experience

Debt collection business is not a type of business you can just dabble into. You need experience in credit and debt collection. Except you have been working in debt recovery department of an organization like bank, it is good to work with a debt collection agency before you start your own. You may not need much capital to start debt collection agency but you need experience. Experience is your capital asset. You need to know how to deal with debtors without infringing their rights. You need a good understanding of fair debt collection practices act. You should know that you cannot harass a debtor for the fact that he owes. You need to respect his privacy. All these may sound as natural to anyone but it takes experience for somebody to put it into practice. After you have garnered enough experience, then you can now set to start your debt collection business.

Register your business

You need to give your debt collection agency a good name. You should register the name with Corporate Affairs Commission or the government agency that is responsible for business and company registration in your company. Registration of business name does not require much formality and it does not cost much money. But if you want to register a Limited Liability Company, you may need to engage an Attorney. After the registration of the business has been completed, you should register with Tax Authority and obtain Tax Identification Number immediately.

Read Also: Factors Affecting Choice of Legal Structure of Your Business

Open Bank Account

You must open a separate bank account for your debt collection business. You should separate the business and clients’ monies from your personal money. You should also develop a debt management and collections system that will allow you track the payments received on behalf of your clients. You can use Microsoft Excel for this if you have the skill. If you have enough funds, investment into debt collection software may be ideal.

Obtain License and Permits

If you want to operate debt collection agency, you will need to obtain necessary licence and permits, otherwise you may be considered as someone running illegal business.  Also, you need to take insurance that will cover you against unnecessary liability in case a legal action is taken against you by any aggrieved debtor. If you work with an attorney, he may be able to guide you on some issues. This will also reduce your exposures.

Embark on Marketing

You can operate debt collection business from home but you will need to invest in marketing. You don’t need to spend much money before you can have effective marketing. If you do it strategically, you may not need to spend a lot. Your marketing tools will include words of mouth, business cards, fliers and a simple website. A website will give credibility to your debt collection agency. When a debtor conducts a search on the internet and sees your website, this can make him to take you more serious. You will be spending a lot of time making telephone calls and sending mails. All these costs form part of your overheads. Therefore  you must ensure you are able to recover your overheads from the fees you will charge your clients. One good thing about debt collection business is that, if you do your marketing well, you will always get clients. The fact that they will not pay you until you have recovered their debts for them will make clients to engage you.

Read Also: Email Marketing Tips for Small Businesses

After the clients must have engaged you, you need to send the letters to the debtors to confirm their debts within thirty days. It is good that you develop different templates and letter formats so that you don’t need to start drafting letters from the scratch any time you want to communicate with the debtors. It will save you costs if you can be sending most of your correspondences through emails. This will reduce the amount you will need to spend on printing of stationery.

Analysis of Debt Collection Business

Before you start a debt collection business, it is advisable that you carry out your SWOT analysis so that you can be sure you are ready to go. Since everybody will have his or her unique strengths and weaknesses, it will be impossible here to come up with SWOT analysis that actually reflects your situation. Nevertheless, if your situation is similar to the SWOT analysis example presented below, I will say that it might not be a bad idea if you should start a debt collection business.


  • Debt collection experience
  • Listening skills
  • Understanding of negotiation process
  • Good communication skills
  • Persistent and Optimistic
  • Confident
  • Trustworthy
  • Good work ethic
  • Self-motivated
  • Multi-tasking

  • No debt collection experience
  • Lack of Listening skills
  • Don’t understand negotiation process
  • Lack of good communication skills
  • Not Persistent and Optimistic
  • Not Confident
  • Not Trustworthy
  • No good work ethic
  • Not self-motivated

  • High Debt profile in financial sectors
  • Debt recovery order from Apex Bank
  • Option given to hire Debt Collectors
  • Few licenced debt collection agency
  • Large branch network of bank branches

  • Enforcement of fair debt collection practices Act
  • Debtor filing for bankruptcy
  • Long arbitration process

From the SWOT analysis above, you should be able to come up with a strategy that will help you in your decision to start a debt collection agency.

Currently, the non performing debts profile in the financial sectors in our country is quite high. The instruction from the Apex bank that all banks should ensure that these debts are recovered is creating pressure in the system. Some of these banks are not willing to employ new staff in order to keep their overheads low. So, the option of hiring debt collectors seems appealing knowing fully well that they don’t need to pay the debt collectors until the monies are collected from the debtors. Also, the number of debt collection agencies we have in the country are still very few compared to the branches of banks we have nationwide. This makes starting of debt collection agency a good business idea.

This is just the first step. Before you jumped into the opportunity, you need to take inventory of your strengths. Going through the list above, you can examine yourself to determine whether you have the required skills to start a debt collection agency. It is understood that you might not possess all the skills. It is an opportunity for you to develop yourself in the areas of your weaknesses. If your strengths match this debt collection opportunity, then you are good to go.

Read Also: Developing Your Skills As An Entrepreneur

Lastly, there may be some external factors which may make the business not that attractive. The need to comply with the requirements of Fair Debt Collection Practices Act seems to favour debtors. It places some restrictions on you as a debt collector. Infringement of the Act may lead to the filing of lawsuits against you. It will be like a case of an hunter being hunted. If a debtor is not honouring the demands for payments, the best you can do is to file a suit against him. This process may be too long. It is time wasting and can be costly too. Few debtors can take it to the extreme by filing for bankruptcy. In most cases, you discover clients will only turn debts that are difficult to collect to you. So the possibility that you will be able to collect the debts is not there. That is why this type of business is not for people who don’t have experience in debt collection.

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