newsletter Collect! | self-description of collection agencies

Category: Internal memos
Notes: CL is looking for training manuals, leaked memos from financial collection and other firms, and industry specific bits like this - please send to creditlandonline@gmail.com


Excerpt from Sales June 2008 Newsletter - Collect.org

What is a Collection Agency and can I make Money Doing this?
What is the main difference between first-party and third-party debt collectors? Third-party collectors are directly regulated by the Fair Debt Collection Practices Act (FDCPA), which is enforced and administered by the Federal Trade Commission (FTC). The FDCPA sets forth guidelines to protect consumers from abusive, misleading and unfair debt collection practices. First-party collectors are the credit grantors or your clients, business owners who have extended credit.

Third-party debt collectors work with First-party collectors or credit grantors to secure the payment of debts that have not been paid. As a professional debt collector you will locate consumers, determine why a bill or debt has not been paid and work with the debtor to get the payment. Unforeseen circumstances such as illness, death, job loss or divorce can sometimes cause an otherwise good credit risk customer to plunge into a situation where they cannot pay their bills.

A collection agency is a service business. Bill collectors act as agents for clients who could not get paid for products or services that they provided to their customers. A business places past due accounts with an agency and the agency tries to collect for them. Some agencies collect what is due on the bill and keep a commission on what they collected, and then send the client the balance of the money. Some agencies charge a flat rate for collection efforts.

Agencies can collect for hospitals, physicians, lawyers, retailers, service providers, and many other types of businesses. Any business that extends credit or accepts checks may have a need for a collection agency.

There are many laws an agency must follow when collecting debts. You should familiarize yourself with those laws and keep them available for reference. I include a listing of these laws in my book; I also include a listing of what you can and cannot do when collecting money that is owed to your clients.

Collection agencies have a terrible reputation caused by a few agencies that have created bad names in the industry. This is why you should follow the FDCPA closely. Surprisingly, not all agencies follow the FDCPA.

Some collection agencies collect in different ways, some only collect by mail, some by mail and phone and some only with legal action. You will need to decide which type of agency you want to have.

Collection agencies do not normally get paid by the hour. Instead, they work on a commission basis, therefore if you do not collect, you do not get paid. Commissions range from 25% on young accounts to 50% on those that are older or small balances. For instance, a collection service that gets the debtor to pay a $1,000 medical bill will earn $250 to $500 depending on the age of the debt and the agreement with their client. Typical annual gross revenues range from $30,000 to $60,000 based on a 25% commission for collections of $10,000 to $20,000 per month (the average for a small collection service.)

This article is taken from "Starting a Collection Agency, How to make money collecting money 3rd edition", by Michelle Dunn. This book is the only award winning, comprehensive book on how to start and manage a collection service. Available at http://www.MichelleDunn.com